January 15, 2015 / 1:28 PM / in 3 years

Dollar General seen losing Family Dollar bid

(Reuters) - Dollar General Corp stuck to its estimate of divesting 1,500 stores to win approval for its bid to buy Family Dollar Corp, a move that analysts said could end up handing the company to Dollar Tree Inc.

The sign outside the Dollar General store in Westminster, Colorado is pictured December 4, 2014. REUTERS/Rick Wilking

Dollar General’s statement comes a day after two influential proxy advisory firms changed their stance, advising Family Dollar’s shareholders to vote for a deal with Dollar Tree as it offered more certainty of closure.

The firms cited Dollar General’s failure to commit to a “hell or high water” clause or divesting more stores for their changed recommendation.

Dollar Tree offered to buy Family Dollar for $8.5 billion in cash and stock and divest as many stores as needed to clear antitrust hurdles. Dollar General bid $9.1 billion in cash but has not shown willingness to shed more than 1,500 stores.

“While not official, today’s DG press release will more or less end the 7-plus month dollar store drama with the Family Dollar assets ending up in the hands of Dollar Tree,” Sterne, Agee & Leach analyst Charles Grom wrote in a note.

The U.S. Federal Trade Commission is evaluating the offers over worries that a deal could inflate prices at discount stores.

Dollar General called the FTC’s method to predict price increases “controversial”.

“The FTC has departed from the approach used to analyze retail mergers over recent years and has instead relied heavily on an untested theoretical model,” Dollar General said.

Family Dollar on Monday estimated that regulators would need Dollar General to divest 3,500-4,000 stores. It also asked shareholders to vote for Dollar Tree’s offer at its Jan. 22 shareholder meeting.

A source close to Family Dollar told Reuters that the only path for Dollar General to work with the FTC now was through litigation, which could last many months.

Dollar General said it would defend any lawsuit and expects to certify substantial compliance with the FTC’s requests for information by Feb. 10, which would put a 30-day limit on how long the agency could mull over the proposed transaction.

Several antitrust experts said Family Dollar shareholders were unlikely to vote against Dollar Tree after Thursday’s developments.

“It seems like (Dollar General) is giving up,” said an expert, who spoke privately because he had not run a conflict check with his law firm.

Dollar General’s shares were down 2.5 percent, while Dollar Tree was up 1.3 percent.

Editing by Saumyadeb Chakrabarty

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