orp. offered $9.7 billion for Family Dollar Stores Inc., (FDO) challenging Dollar Tree Inc.'s agreed $8.5 billion takeover of the discount retailer.Dollar General plans to pay $78.50 a share in cash, compared with Dollar Tree’s bid of $74.50 a share in cash and stock, the Goodlettsville, Tennessee-based company said today in a statement. Dollar General forecast synergies of $550 million to $600 million per annum three years after completion.
“We look forward to expeditiously entering into constructive discussions with Family Dollar in order to sign a definitive merger agreement,” Chief Executive Officer Rick Dreiling said in the statement.
If combined, Dollar General and Family Dollar would have about $28 billion in annual revenue, according to data compiled by Bloomberg. With more similarities to Family Dollar, Dollar General may be able to extract even greater benefits from a takeover than Dollar Tree through cost cuts, according to Poonam Goyal, a senior retail analyst for Bloomberg Intelligence.
The proposed combination would add to earnings by a low double-digit percentage in the first full year, excluding implementation and transaction costs, Dollar General said.
The enlarged company would be prepared to sell as many as 700 stores to gain antitrust approval, according to the statement. Dollar General, which is being advised by Goldman Sachs Group Inc., is “confident it can quickly and effectively address any potential antitrust issues.”
Cheap Goods
Family Dollar and Dollar Tree are the No. 2 and No. 3 dollar-store chains by number of outlets, while Dollar General is the largest. Sales at the chains, which specialize in cheap household goods, have slowed since the U.S. economy began improving and consumers became less focused on finding bargains. They are still outpacing bigger discount retailers such as Wal-Mart Stores Inc. and Target Corp.
While Dollar Tree caters to middle-class consumers and sells most items for $1, the other chains both focus on low-income shoppers and offer more food at various price points.
