Dollar General questions motives of Family Dollar CEO

Thu Aug 21, 2014 5:15am EDT

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

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

Credit: Reuters/Rick Wilking

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(Reuters) - Dollar General Corp (DG.N) questioned whether Family Dollar Stores Inc (FDO.N) Chief Executive Howard Levine was being driven by self-interest in his support of a proposed takeover of his company by Dollar Tree Inc (DLTR.O).

Dollar General, which has made its own offer to buy Family Dollar, also alleged it had been led astray by Levine in talks on a potential buyout, notably during a meeting on June 19.

"At no time during this meeting did Mr. Levine indicate that there was a process, that there was any urgency to act or that there were discussions with another potential buyer," said Dollar General Chief Executive Rick Dreiling in a letter to Family Dollar's board on Wednesday.

"Had we left the meeting with the belief that a sale of Family Dollar was imminent, we assure you that our course of action would have been different."

Bryn Winburn, a Family Dollar spokesman, did not immediately respond to an email seeking comment.

Dollar General offered to buy Family Dollar Stores for $8.95 billion on Monday, trumping the agreed deal with Dollar Tree that was announced on July 28.

Levine would remain CEO of Family Dollar if the company is bought by Dollar Tree, but is expected to lose his job if Dollar General buys Family Dollar.

Dreiling has said he will delay retirement to stay on as CEO of the combined company if Dollar General buys Family Dollar.

Dollar General said its offer was better for Family Dollar's shareholders than the deal offered by Dollar Tree, "although perhaps not for Mr. Levine personally."

Dollar stores are popular with low- and middle-income U.S. consumers in a weak economy but are facing increasing competition from big-box retailers such as Wal-Mart Stores Inc (WMT.N), putting pressure on them to merge.

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.

Billionaire investor Carl Icahn has also questioned whether Levine's future role at Dollar Tree could have influenced the decision to go ahead with the Dollar Tree deal.

Icahn, who took a 9.4 percent stake in Family Dollar in June, has pushed the company to sell itself to Dollar General.

"The Family Dollar board is wasting more than $300 million (in breakup fees) in an attempt to chill a competing bid from Dollar General, which would keep Howard Levine out of the company once and for all even though the Dollar General bid would enhance the value of Family Dollar stock," Icahn told Reuters on Tuesday.

Family Dollar said on Monday it was reviewing Dollar General's offer, but had not changed its recommendation in support of a merger with Dollar Tree.

(Reporting by Supriya Kurane and Ramkumar Iyer in Bangalore; Editing by Gopakumar Warrier and Ted Kerr)

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