Dollar Tree has entered into an agreement to acquire fellow discount retailer Family Dollar Stores in a cash and stock transaction worth approximately $8.5 billion at $74.50 per share, which is 23% above Family Dollar’s closing stock price on July 25. The transaction has been unanimously approved by the Boards of Directors of both companies and is expected to close by early 2015.
This deal may have come as a surprise to some, since a deal with Dollar General also was up for discussion recently. A few weeks ago CNBC’s Jim Cramer debated the potential deals and suggested that Dollar General would be the better choice.
But following investments in Family Dollar by two billionaires, Carl Icahn and Nelson Peltz, the retail chain may have become a more palatable acquisition, according to a report on Bloomberg.com
The transaction is designed to enable Dollar Tree to offer both fixed-price and multi-price point store formats with an expanded product assortment.
“This acquisition will extend our reach to lower-income customers and strengthen and diversify our store footprint,” said Bob Sasser, CEO of Dollar Tree in a press statement. “We plan to leverage best practices across both organizations to deliver significant synergies, while we accelerate and augment Family Dollar's recently introduced strategic initiatives. Combined, our growth potential is enhanced with improved opportunities to increase the productivity of the stores and to open more stores across multiple banners.”
The agreement provides Family Dollar with a 22.8% premium over the company’ closing price as of July 25, 2014. Icahn acquired a 9.4% stake in Family Dollar in July, and urged the company in a letter to put itself up for sale immediately.
In April, Family Dollar announced it would close 370 stores and slash prices on nearly 1,000 basic store items amid disappointing Q2 2014 financial results.
Howard Levine, CEO of Family Dollar, will remain with the company and report directly to Sasser. Additionally, Levine will become a member of the Dollar Tree Board of Directors.