Some Dollar Tree investors see advantages if Family Dollar bid fails

Thu Sep 11, 2014 3:27pm EDT
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By Tim McLaughlin and Ross Kerber

BOSTON, Sept 11 (Reuters) - Some Dollar Tree Inc investors are crossing their fingers the company doesn't succeed in its $8.5 billion takeover of Family Dollar Stores Inc , saying it could expand and repurchase stock with the $305 million breakup fee while avoiding all the risk of a major acquisition.

The deal announced in July is now under threat after similarly-named but larger rival, Dollar General Corp, outbid it this week with a $9.1 billion hostile takeover proposal. Dollar General had been rebuffed by Family Dollar on previous offers but is seen as likely to win a protracted battle this time.

"I would rather see them (Dollar Tree) walk away, take the breakup fee and continue buying back a substantial amount of shares," said Stephen Goddard, chief investment officer at London Company, a money manager that owns about 1.2 million Dollar Tree shares. Goddard said the money also could be reinvested in new stores.

But if Dollar Tree's bid fails, the company would miss out on an opportunity to more than double its store count and extend its reach to lower-income customers.

Dollar Tree hopes to combine its 5,200 stores with Family Dollar's more than 8,000, a move that would make it a top player in budget retailing in North America. Dollar General, meanwhile, has more than 11,000 stores. It has said it is willing to divest up to 1,500 stores to appease regulators if its takeover of Family Dollar pans out.

Dan Hanson, head of U.S. equities at fund manager Jarislowsky Fraser, said if Dollar Tree doesn't end up with Family Dollar it might still be able to buy stores divested under the rival deal.

"They're in the driver's seat," Hanson said of Dollar Tree. His firm owns more than 1 million Dollar Tree shares, according to public disclosures.

"I don't know how many stores you could buy with the break-up fee, but quite a few," said Chuck Severson, a senior portfolio manager at RW Baird. "You could certainly accelerate store growth with that money."   Continued...