Family Dollar spurns Dollar General bid on antitrust concerns

Thu Aug 21, 2014 2:17pm EDT
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By Sruthi Ramakrishnan, Devika Krishna Kumar and Lawrence Hurley

(Reuters) - Family Dollar Stores Inc FDO.N rejected a $9 billion buyout offer from Dollar General Corp (DG.N: Quote) that it said could run foul of competition law, opting instead for a smaller bid from Dollar Tree Inc (DLTR.O: Quote) that guarantees a job for its CEO.

Family Dollar, the second-largest dollar store in the United States, said it believed a deal with its larger rival would be unlikely to win antitrust approval, despite a promise by Dollar General to close some stores.

"We will not jeopardize the Dollar Tree deal for a transaction with Dollar General that has a high likelihood of not closing due to antitrust considerations," said Ed Garden, an independent director on Family Dollar's board and co-founder of Trian Fund Management LP, a large shareholder.

Trian Fund Management, led by activist investor Nelson Peltz, owned 7.3 percent stake in Family Dollar as of July 27.

Dollar stores, a popular choice for penny-pinching customers in a weak U.S. economy, have come under pressure to merge as competition intensifies, particularly with Wal-Mart Stores Inc (WMT.N: Quote) opening more small-format stores.

The formal rejection came a day after Dollar General Chief Executive Rick Dreiling questioned whether his counterpart at Family Dollar, Howard Levine, was serving his own interests in supporting Dollar Tree's $8.5 billion offer.

As friction escalated, Levine responded on Thursday by saying that Dreiling's letter "contained blatant mischaracterizations and did nothing to address the antitrust issues in Dollar General's proposal."

Dreiling said in a rebuttal that Dollar General had "done extensive antitrust analysis using experienced advisers, the results of which confirm that the transaction as proposed is capable of being completed."   Continued...

A Family Dollar store is seen in Chicago, in this June 25, 2012 file photo. REUTERS/Jim Young/Files