story by Kim Souza
ksouza@thecitywire.com
Dollar General won’t take “no” for an answer. The company extended a tender offer directly to Family Dollar stockholders for $80 a share on Wednesday (Sept. 10). The hostile takeover attempt comes after two rejected acquisition offers to Family Dollar’s board of directors.
“By taking this step, we are providing all Family Dollar shareholders a voice in this process, and we urge them to tender into our offer,” said Dollar General CEO Rick Dreiling. “We now can begin the antitrust review process and will have an opportunity to present our position directly to the Federal Trade Commission. As we previously have stated, we are confident in the results of our antitrust analysis, and we look forward to a constructive dialogue with the FTC.”
In an offer made last week, Dollar General added a $500 million breakup fee and increased the number of stores it is willing to sell to get antitrust approval to 1,500 from 700.
Family Dollar management opted to take a lower priced offer from Dollar Tree, a deal that would reward stockholders with $74.50 per share and allow more of its 7,000 stores to remain open. Family Dollar management cited anti-trust concerns as the main reason it opted for the Dollar Tree offer because there is not as much overlap in those two company footprints.
If Dollar General is successful in its hostile takeover attempt and U.S. regulators sign off of the deal, the combined companies would form the largest retail chain in the country more than 18,000 stores. Wal-Mart, a big box discounter but also a competitor in the dollar store channel, has just 11,000 stores across the entire world.
Family Dollar said Wednesday it would "review and consider" the tender offer from its larger discount retailing rival, as part of its fiduciary responsibilities to its shareholders. Family Dollar urged its shareholders to take no action until it announces its recommendation in a regulatory filing no later than Sept. 23. The company reiterated its support for the Dollar Tree merger.
The hostile offer announced Wednesday is slated to expire Oct. 8, unless extended. Dollar General said it will immediately begin seeking anti-trust clearance for the deal.
The jury is still out as to whether this blockbuster deal will pass regulatory muster. It ranks as the fifth largest hostile takeover attempt this year among U.S. based companies, according to Dealogic who values the deal at $9.849 billion. None of the four larger deals have been completed, according to Edward Jones, media spokesman for Dealogic.
The 21st Century Fox hostile attempt to acquire Time Warner was valued at $96.34 billion when announced in July and has since been withdrawn. The same is true for Charter Communications $62.61 billion bid for Time Warner announced in January.
Jones said Valeant Pharmaceuticals $56 billion hostile bid for Allergan Inc. is still pending as is the $33.7 billion hostile takeover deal for T-Mobile by Iliad SA.
“It will be interesting to see how this shakes out. It is likely going to come down to the Federal Trade Commission approval and this is a way for Dollar General to test for themselves those waters,” said Alan Ellstrand, corporate governance expert at the Sam M. Walton College of Business, University of Arkansas.
He said historically the measure of success in hostile takeover situations is linked to how the deal is financed.
“If a company has to highly leverage its assets with a great deal of debt to accomplish a hostile takeover, then it could be vulnerable if market dynamics change, interest rates rise or there is some other economic factor that impacts profitability,” Ellstrand said.
The Dollar General offer is not conditioned upon any financing arrangements. Dollar General has received written commitments from Goldman, Sachs & Co. and Citigroup Global Markets Inc. for the financing necessary to consummate the proposed all-cash transaction.
Ellstrand said shareholders will likely to be tempted to take higher offer, especially institutional investors.
Dollar General management notes their $80 per share offer provides Family Dollar shareholders with approximately $640 million of additional aggregate value over the Dollar Tree offer. It represents a premium of 31.9% over the closing price of $60.66 for Family Dollar stock six weeks ago, the day before Dollar Tree made its first offer.
Brian Yarbrough, a retail analyst with St. Louis-based Edward D. Jones & Co., notes that Dollar Tree will just have to see how events play out as it probably lacks the resources to outbid Dollar General, which is about twice its size.
“There’s no reason for Dollar Tree to up their bid,” he said. “At the end of the day, they know Dollar General has a lot more firepower.”