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Dollar Tree buying Family Dollar for $8.5 billion

First Published Jul 28 2014 08:35AM      Last Updated Jul 28 2014 11:18 am

New York • Dollar Tree is buying rival discounter Family Dollar, giving it a wider reach in the intensifying fight for deal-seeking customers.

The $8.5 billion deal will give Dollar Tree more than 13,000 stores in the U.S. and Canada. The current leading discounter, Dollar General Corp., has more than 11,300 stores in the U.S.

Dollar stores have struggled as major retailers including Wal-Mart Stores Inc. and Kroger have stepped up their courtship of lower-income customers by opening smaller store formats that compete more directly with such discounters. Sales are also suffering because the lower-income customers who go to dollar stores still haven’t recovered from the recession and its aftermath because of persistent job instability and slow wage growth.



AT A GLANCE

The companies

Despite similar names, Dollar Store and Family Dollar vary in their business models. Here’s a snapshot of the two chains:

Dollar Tree

» Founded in 1986.

» About 5,000 locations.

» True to its name, everything in the store costs a buck.

» About half of products are “consumables” — cereal, potato chips, sodas.

» Stores are 8,000 to 10,000 square feet, concentrated in suburban areas.

» Target customer is a “broad range of middle America.”

Family Dollar

» Founded in 1959.

» About 8,000 locations.

» Prices vary, with only 13 percent of sales coming from items that cost $1 or less. Most items are less than $10.

» About 72 percent of products are consumables, 10 percent home products, 10 percent seasonal & electronics and 8 percent apparel and accessories.

» Stores are about 7,500 to 9,500 square feet, with a concentration in urban and rural areas.

» Target customer is “low- to lower middle-income.”


Family Dollar shuttered stores and cut prices as result, and had been conducting a strategic review since the winter. Last month, investor Carl Icahn urged the company to put itself up for sale. Icahn has built up a stake in the company of more than 9 percent, according to regulatory filings.

On Monday, Dollar Tree CEO Bob Sasser noted that his company and Family Dollar have different business models. While all items sold at Dollar Tree cost just a dollar, Family Dollar charges a broader range of prices, which allows it to sell a greater variety of items including brand-name products such as Kraft cheese or Tide laundry soap.

As such, Sasser said the two chains "co-locate really well" and offer complementary merchandise.

The companies did not say if any Dollar Tree or Family Dollar stores would be closed. Dollar Tree will continue to operate under the existing Dollar Tree, Deals, and Dollar Tree Canada store banners. It will keep the Family Dollar brand as well.

Stockholders of Family Dollar Stores will receive $59.60 in cash and the equivalent of $14.90 in shares of Dollar Tree for each share they own. The companies put the value of the transaction at $74.50 per share, which is an approximately 23 percent premium to Family Dollar’s Friday closing price of $60.66.

Including debt and other costs, the companies estimate the deal to be more than $9 billion.

Family Dollar stockholders will own somewhere between 12.7 percent and 15.1 percent of Dollar Tree’s outstanding common shares at closing. Shares spiked more than 24 percent and were headed for an all-time high before the opening bell Monday.

Shares of Dollar Tree neared an all-time high.

The combined Dollar Tree-Family Dollar chain will have sales of more than $18 billion. Family Dollar Chairman and CEO Howard Levine will still lead those stores and report to Sasser.

Dollar Tree plans to finance the deal with available cash, bank debt and bonds.

The boards of both companies have unanimously approved the deal, which is expected to close by early next year. It still needs approval from Family Dollar shareholders.

Shares of Family Dollar Stores Inc., based in Charlotte, North Carolina, surged $14.89 to $75.55 in premarket trading. The record high during regular trading is $75.29.

Shares of Dollar Tree Inc., based in Chesapeake, Virginia, jumped 10 percent, or $5.50 to $59.72. The all-time high for that stock is $60.19.

 

 

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