Dollar General’s offer to buy Matthews-based Family Dollar in a $9.7 billion deal raises the stakes for Charlotte – casting doubt on a pending acquisition by another rival and spurring talk of potentially deep layoffs at one of the city’s most prominent homegrown retailers.
Tennessee-based Dollar General announced Monday it would pay $78.50 a share for Family Dollar in an all-cash deal. That’s $4 a share, or 5.4 percent, higher than the offer by Virginia-based Dollar Tree, which Family Dollar agreed to last month.
One analyst said a Dollar General deal could mean heavy layoffs at Family Dollar’s Matthews headquarters, home to some 1,400 corporate employees.
Dollar Tree and Family Dollar have very different retail strategies – everything at Dollar Tree sells for $1, while Family Dollar has many price points. Dollar General, on the other hand, has a business model that’s virtually identical to Family Dollar. That means more duplicate functions could be cut in a merger, said Brian Yarbrough, an analyst with Edward Jones.
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Should such a deal win acceptance from Family Dollar shareholders, he said, it could close sometime early next year. Yarbrough said he’d expect to see significant layoffs in Matthews by the end of 2015.
“A lot of jobs are definitely in jeopardy. I think it’s unfortunate because a lot of people worked very hard to help Family Dollar try to turn things around,” Yarbrough said. “But as far as the Family Dollar headquarters, I don’t think there will be much of it left after the deal closes.”
The proposed Dollar Tree deal, announced July 28, envisions a different scenario: Dollar Tree and Family Dollar have said they expect to keep many of the corporate jobs in Matthews, and that Family Dollar CEO Howard Levine would stay on at the combined company for at least two years. He would report to Dollar Tree CEO Bob Sasser. Dollar Tree also plans to keep the Family Dollar name on many of the combined company’s stores.
Dollar General didn’t say early Monday what it might do with the Matthews headquarters jobs or the Family Dollar name, or what Levine’s role would be.
“It’s a little soon for all of that right now,” Dollar General CEO Rick Dreiling told analysts when asked whether the company would keep the Family Dollar brand. “We’re more focused on the inside of the box as opposed to what the sign is on the outside.”
Family Dollar issued a statement confirming it received Dollar General’s offer and said the board of directors will “carefully review and consider the proposal.” But Family Dollar declined to comment further, and executives were not available to speak, a spokeswoman said.
A Dollar Tree representative declined to comment.
Dollar General’s bid raises the possibility of a bidding war with Dollar Tree.
Dreiling told investors that Dollar General’s offer is a better deal for Family Dollar’s shareholders because it has a higher price and doesn’t include stock. Dollar Tree’s cash-and-stock deal includes $59.60 a share in cash and $14.90 worth of Dollar Tree stock for each share of Family Dollar.
“Coupled with the certainty of an all-cash offer, we believe our proposal is far superior for Family Dollar shareholders,” Dreiling said during a conference call. “We believe that Family Dollar’s board and management team will recognize the superiority of our proposal.”
Dollar General told investors Monday it expects to generate at least $550 million worth of savings by combining with Family Dollar.
Wayne Hood, an analyst with BMO Capital Markets, said he believes Dollar General can afford to bid as high as $85 per share.
“We would not be surprised if (Dollar Tree) were to make a counteroffer, but it could be difficult to make a superior all-cash bid much above $80 per share without more synergy savings.”
Erik Gordon, a business professor at the University of Michigan’s Ross School of Business, said Dollar Tree has seemed more motivated to buy Family Dollar, but Dollar General can afford to pay more.
“In the end, I think Dollar General can put more money on the table, and those are the guys who usually win,” Gordon said.
Almost 20,000 stores
Family Dollar’s stock rose nearly 5 percent Monday, closing at $79.81 – more than $1 above Dollar General’s offer price. That could indicate some buyers anticipate yet another competing offer for the Matthews retailer.
Dreiling said he would postpone his planned May 2015 retirement for a year to make the acquisition work, removing what analysts had said was one of the major stumbling blocks to a Family Dollar-Dollar General deal.
Dollar General also offered to pay the $305 million breakup fee Family Dollar would owe Dollar Tree, and Goldman Sachs and Citigroup have committed to financing Dollar General’s bid.
Dollar General’s proposal would create the nation’s largest discount variety retailer. Dollar General is No. 1 in the category, trailed by Family Dollar. The combined company would have almost 20,000 stores, $28 billion in revenue and more than 160,000 employees.