A little over a week remains for the final call on the fate of the pending deal between Family Dollar Stores Inc. (FDO) and Dollar Tree, Inc. (DLTR), and the former is trying all means to convince its shareholders to favor the transaction. The vote on the bid has already been postponed twice, and Dollar Tree is in no mood to delay the meeting that has been rescheduled for Jan 22, 2015.
Family Dollar decided to stick with Dollar Tree’s buyout offer of $8.5 billion despite a higher bid of $9.1 billion from Dollar General Corp. (DG). Matthews, NC-based Family Dollar cited ‘antitrust concerns’ behind the rejection of Dollar General's proposal.
Family Dollar, in a recent letter to shareholders, highlighted the reviews of Federal Trade Commission (“FTC”). The company stated that accepting Dollar General’s proposal would involve divestment of 3,500 to 4,500 stores, but a deal with Dollar Tree would require divestiture of about 310 stores. The company also remains optimistic about concluding the transaction by March, and informed that Dollar Tree has found potential buyers for the stores to be offloaded.
The giant that will arise once the deal between Family Dollar and Dollar Tree is closed will be strong enough to single-handedly counter competition from retail bellwethers such as Wal-Mart Stores Inc. (WMT) in the dollar-discount store segment.
The combined chain, with the ability of generating sales of over $18 billion, will be in a better position to reach out to more value-seeking consumers through its vast network of more than 13,000 stores spanning 48 states and five Canadian Provinces. The buyout, which will help Dollar Tree to emerge as a leading discount retailer in North America, will also assist in providing customers with products at a fixed price ($1 or less) under its banner and multi-price point under Family Dollar.
The acquisition will enhance the buying power of the pair, providing better negotiating terms against suppliers. The combined company will be able to offer broader and multiple assortments at more compelling prices. Moreover, the transaction will help in achieving operational and distribution efficiencies as well as cost synergies.
Dollar Tree anticipates savings of $300 million in annual costs by the end of the third year, after the deal is closed. Post-acquisition, the companies will be able to tap new markets, enhance market share in existing ones, extend the sales channel and generate significant free cash flow to increase store count and repay debt.
Currently, both Family Dollar and Dollar General carry a Zacks Rank #3 (Hold), while Dollar Tree carries a Zacks Rank #2 (Buy).
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