The first (Dollar General) and third (Dollar Tree) largest dollar stores in America are competing to takeover the second (Family Dollar) largest dollar store. Family Dollar faces the risk of a hostile takeover by Dollar General after rejecting its second takeover offer. Dollar General’s latest offer is at $9.1 billion or $80 a share, while Dollar Tree’s offer stands at $8.5 billion or $74.5 a share. After two failed attempts, Dollar General is taking its offer directly to shareholders hoping that they will reject Dollar Tree’s offer in favor of Dollar General. The offer to shareholders, however, will only be honored by Dollar General if Family Dollar signs off with their approval.
There is one significant reason why Family Dollar hasn’t voted in favor of Dollar General’s $9.1 billion offer, which trumps Dollar Tree’s $8.5 billion offer. That reason is the risk of antitrust regulatory scrutiny; according to Family Dollar, there is a high chance that a deal with Dollar General won’t be approved by regulators. The concerns come as Family Dollar and Dollar General are the two largest dollar stores in America, their prices are both similarly under ten dollars, and many of their stores are in the same vicinity. On the other hand, Dollar Tree is the third largest dollar store, offers most products at under a dollar, and doesn’t have as much store overlap. It is clear that a merger between Family Dollar and Dollar Tree has a higher chance at obtaining approval than a deal with Dollar General does. Some will argue that a Family Dollar and Dollar General merger would simply allow the company to compete with Walmart, Target, and convenience stores – thereby, not breaking antitrust laws. A Family Dollar and Dollar Tree merger, however, would simply create stronger competition for Dollar General.
To put Family Dollar’s concerns to ease, both Dollar General and Dollar Tree have offered significant concessions – some of which haven’t been very convincing by Dollar General. Dollar General’s latest offer promises to divest up to 1,500 stores to obtain regulatory approval, and a $500 reserve break fee if the deal isn’t approved. On the other hand, Dollar Tree has promised to divest up to an unlimited number of stores and to do anything necessary to get regulatory approval.
Looking forward, a takeover by Dollar General will need shareholders approval, Family Dollar’s support, and antitrust regulators’ permission. Dollar Tree currently has the upper-hand as it has already established a takeover agreement with Family Dollar and is likely to obtain regulatory approval.
By: Jacob Kalatizadeh