Dollar Tree Wins the Battle for Family Dollar

Dollar Tree Wins the Battle for Family Dollar

Shareholders Approve Lower but Safer Offer, Leaving Dollar General Behind

By Paul Ziobro in the Wall Street Journal

Dollar General Inc.’s chance to buy Family Dollar Stores Inc. died Thursday.

Shareholders of Family Dollar overwhelmingly approved being sold to Dollar Tree Inc., choosing regulatory certainty over a riskier—but higher—offer from Dollar General.

The Dollar Tree deal won 89% of the vote, effectively bringing Dollar General’s longtime pursuit of its main rival to an end. Dollar General had long eyed buying up its main competitor, but those plans were derailed when Dollar Tree swooped in last summer with an cash and stock offer now worth $8.7 billion.

Dollar General came in three weeks later with a $9.1 billion all-cash offer but it failed to satisfy concerns on Family Dollar’s board that combining the biggest two dollar store chains would face significant antitrust hurdles.

After the deal, Dollar General, the biggest of the three dollar stores, will face a larger competitor that will have more locations around the country. The new Dollar Tree will keep both brands and operate both dollar store models—Dollar Tree’s, where all items are sold for $1, and Family Dollar’s model, where everyday goods and groceries are sold at a variety of discount prices.

Before the Dollar Tree offer, it was presumed that Dollar General would be the logical suitor to buy Family Dollar, which had attracted interest from activist investors including Carl Icahn and Nelson Peltz ’s Trian Fund Management as a possible takeover target.

Top executives and board members from Dollar General and Family Dollar had informal conversations for years about the merits of combining their two businesses. But those discussions never resulted in an offer, and Dollar General Chief Executive Rick Dreiling last June announced his retirement, thinking that the chance for a deal was dead.

Then came Dollar Tree’s surprise July bid for Family Dollar.

Mr. Dreiling has said he was floored by the move, thinking that his company was the only one with the firepower and desire to buy Family Dollar, and he decided to postpone his retirement.

Just a month earlier, Family Dollar Chief Executive Howard Levine said he had strongly urged Dollar General to make an offer.

“I’m embarrassed,” Mr. Levine recalled saying to Mr. Dreiling, according to a deposition. “I feel like I’m being desperate. But I feel I need to tell you that since you asked, you should make me an offer.” He said that he would take an offer to the board and “it will be fully vetted.”

Mr. Dreiling didn’t get the hint. According to securities filings detailing background on the deal, Mr. Dreiling walked away from the meeting feeling there was no urgency to act.

He backtracked on his retirement plans and ultimately wound up offering $80 a share for Family Dollar, topping the $74.50 on the table with Dollar Tree. Family Dollar, however, turned it down, arguing that the deal couldn’t get done under the given terms, mainly that Dollar General would commit to divesting only 700 stores to appease antitrust regulators.

In the end the lower offer with lower regulatory risk won the day, securing the blessing of Glass, Lewis & Co. and Institutional Shareholder Services Inc., which advise shareholders how to vote on corporate ballots.

The development leaves Dollar General without a partner, but analysts say its prospects remain bright with plans to open an additional 730 stores in its coming fiscal year, and lower gas prices providing a boon to low-end shoppers.

On Thursday, Mr. Dreiling said he would remain CEO and chairman for another year unless a successor is appointed first.

Family Dollar, meanwhile, has suffered during the months of deal negotiations. Its stores are in worse shape than six months ago. A plan to lower prices has disappointed, and its latest quarter’s results were far worse than expected, in part because of distractions from the pending merger.