(Adds Carl Icahn's and antitrust expert's comments)
By Sruthi Ramakrishnan
June 9 Family Dollar Stores Inc adopted
a poison pill to buy time to consider any possible deal that
activist investor Carl Icahn could push for after becoming its
Family Dollar's move "puts a damper" on prospects for a
"friendly dialogue" with the company's executives, Icahn told
Reuters on Monday.
Icahn reported a 9.39 percent stake in Family Dollar on
Friday and said he was considering pushing the $6.89 billion
company to merge with rival Dollar General Corp.
"How does it possibly matter if I own 10 percent or 15
percent of a company? All it does is it makes it more difficult
to have a friendly dialogue, which we already are planning to
have," Icahn said on Monday.
Family Dollar adopted a one-year shareholder rights plan,
commonly known as a poison pill, with a trigger of 10 percent.
"Poison pills" deter hostile takeovers by triggering the
issue of new shares, diluting holdings of investors who exceed a
Family Dollar's shares rose as much as 16 percent to $70.30
on the New York Stock Exchange, while Dollar General's shares
rose as much as 14 percent to $65.97.
Jefferies & Co raised its ratings on the stock of both
companies to "buy", based on a potential merger and synergies of
as much as $1.2 billion.
"We think Dollar General could be a motivated buyer given
where we are in the life cycle of this dollar-store industry and
potential increased competition in small formats coming from
Wal-Mart," analyst Daniel Binder wrote in a note.
Dollar General, which has a market value of $17.59 billion,
has been struggling to shore up margins after it slashed prices
to keep its lower-income shoppers from shifting to Wal-Mart
Stores Inc and Target Corp.
Family Dollar, struggling with falling sales, said in April
that it would close 370 stores, slow its expansion of new stores
and slash prices.
Getting antitrust approval will not be an issue as the
companies do not sell exclusive goods, an antitrust expert, who
asked not to be identified, told Reuters. "I just can't imagine
it's a problem."
However, Sterne Agee & Leach analysts ruled out a merger and
said taking Family Dollar private might be a better option.
"Dollar General took a hard look at Family Dollar in 2013
and passed on the acquisition. Since that time ... the company
has gone out of its way to suggest ... that purchasing Family
Dollar is not part of its strategic focus in the near term."
Dollar General CEO Rick Dreiling prefers organic growth over
acquisitions and buying Family Dollar would be expensive,
Raymond James said.
The company trades at 17.8 times earnings, compared with
Dollar General's 15.6 times and an industry median of 15.1
times, according to Thomson Reuters StarMine.
(Reporting by Sruthi Ramakrishnan in Bangalore, Jennifer Ablan
in New York and Diane Bartz in Washington; Editing by Don
Sebastian and Simon Jennings)