Dollar General Corporation (DG) extended the period of tender offer made to the shareholders of Family Dollar Stores Inc, (FDO) from Oct 8, 2014 to Oct 31, 2014. The company also stated in the release that nearly 126,499 shares have been validly tendered as of Sep 30, 2014.
Dollar General made a hostile bid on its rival Family Dollar after the latter rejected its earlier bids. The third time, Dollar General took its $9.1 billion or $80 per share bid, which is the same as it previously offered, directly to the shareholders.
This bid was rejected by Family Dollar citing ‘antitrust concerns’ and it decided to stick with Dollar Tree Inc.’s (DLTR) less juicy bid of $74.50. Noticeably, Dollar General’s proposal represented an astounding premium of 31.9% over Family Dollar’s closing price as of Jul 25, 2014.
Dollar General also agreed to offload up to 1,500 stores against 700 announced previously to win antitrust concerns. The company had earlier confirmed that it was ready to pay a $500 million reverse termination fee if the proposed transaction did not materialize on regulatory grounds. Hence, a spurned Dollar General went hostile.
Family Dollar has not yet convened the special shareholders’ meeting which will decide the fate of the Dollar Tree deal. The meeting is likely to occur in November or December. This also implies that Dollar General might extend the offer again, which will buy it more time to persuade shareholders to favor its $80 bid.
However, Dollar General’s bid does have certain antitrust concerns, which the company is working on in tandem with the regulatory authorities. For many analysts, the bid has higher chances of receiving regulatory disapproval given the sheer size of the company that would be formed from the merger, throwing serious competition to retail primes such as Wal-Mart Stores Inc. (WMT) and Target Corporation.
The combined entity will have the capacity to operate close to 20,000 stores in 46 states. Dollar General expects revenues to hit over $28 billion and the deal to generate synergies of $550 million to $600 million at an annual rate three years after the deal is closed.
Many analysts also believe that shareholders might go with the Dollar Tree deal if it wins regulatory approval before the special meeting as despite being lower it has higher chances of succeeding compared to Dollar General’s bid that is already mired in regulatory issues. Then again, it is too early to say anything conclusively.
It clearly remains a wait and see story.
At present, Dollar General is a Zacks Rank # 3 (Hold) stock.
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