Dollar General enters race for Family Dollar with $8.95 billion bid

Mon Aug 18, 2014 6:37pm EDT
 
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By Sruthi Ramakrishnan and Devika Krishna Kumar

(Reuters) - Dollar General Corp offered to buy Family Dollar Stores Inc for $8.95 billion, trumping a bid by Dollar Tree Inc and aiming to strengthen its dominance of a growing segment of retailers serving penny-pinching customers.

Shares of Family Dollar, the No. 2 U.S. discount chain, rose as much as 5.2 percent to $80.00 in regular trading, above the offer price of $78.50 per share in cash, suggesting that investors anticipate a bidding war.

"Both Dollar General and Dollar Tree have some capacity to go a little bit higher with the offer price," said Joseph Feldman, analyst at Telsey Advisory Group.

Dollar stores have been a popular choice for low- and middle-income U.S. consumers in a weak economy.

At the same time, Wal-Mart Stores Inc and other large retailers which serve a similar customer base have been struggling with weak sales amid a cutback in spending and a shift in preferences to stores nearer to home.

The U.S. market for dollar stores grew 45.7 percent to $48.2 billion between 2008 and 2013 and is expected to grow 18 percent in the next five years, according to Euromonitor International.

But the growth has recently started slowing due to intense competition, Kahn said.

"We have a tremendous amount of strength in the rural communities and we have things to learn in the metro," Dollar General Chief Executive Rick Dreiling said on a conference call. "Family Dollar is just the reverse."   Continued...

 
A price sign at a Dollar General store in Arvada, Colorado June 2, 2009. REUTERS/Rick Wilking