* Raises bid to $80/share from $78.50
* Agrees to sell up to 1,500 stores, up from 700
* To pay $500 mln breakup fee if deal fails antitrust review
* Family Dollar says reviewing new offer
(Adds Breakingviews link)
By Sruthi Ramakrishnan
Sept 2 Dollar General Corp raised its bid
for Family Dollar Stores Inc to $9.1 billion, and warned
it may turn hostile and appeal directly to shareholders if the
new offer was rejected.
The No.1 U.S. deep-discount retailer also said it would pay
a break-up fee of $500 million if the deal ran foul of
competition law, seeking to overcome Family Dollar's stated
reason to reject its earlier $8.95 billion cash offer.
Family Dollar stuck instead with an $8.5 billion
cash-and-stock bid from Dollar Tree Inc made in late
Family Dollar said on Tuesday its board would review Dollar
General's new offer and that it was committed to the Dollar Tree
Any deal will net Family Dollar CEO Howard Levine between
$690 million and $750 million, based on his 8.2 percent stake in
Analysts said shareholders could pressurize the company to
accept Dollar General's offer.
"Family Dollar's board will be hard pressed to justify
rejecting Dollar General's revised offer without risking a
massive backlash from its shareholders," BB&T Capital Markets
analyst Anthony Chukumba wrote in a note.
Family Dollar's shares rose more than 1 percent to an
all-time high of $80.97 on Tuesday, slightly above Dollar
General's offer of $80 per share, suggesting some investors held
hopes of higher offers.
The fight for Family Dollar comes at a times when dollar
chains are struggling with minimal or no gross margin growth as
they try to keep lower-income shoppers from being lured by
Wal-Mart Stores Inc and Target Corp.
Wal-Mart is doubling down on small-format stores, typically
one quarter the size of its supercenters, a move that could
result in increased competition for the dollar stores.
Research firm Wolfe Research said in a note that the best
outcome for all parties was for Dollar General to merge with
Family Dollar as the combination would be the best placed to
compete with Wal-Mart.
"A levered Dollar Tree/Family Dollar with a standalone
Dollar General is likely to embolden Wal-Mart to further
accelerate its small-box plans, leading to additional market
share gains and diminished consumer choice," Wolfe Research
CLOSING MORE STORES
Dollar General also said it was willing to sell up to 1,500
stores to clear the antitrust review, up from the 700 it had
The company said it hired Richard Feinstein, a former
director of the Bureau of Competition at the Federal Trade
Commission (FTC), to further "validate its antitrust analysis".
Playing down antitrust concerns, Dollar General said its
documents would show that the products it offered were not
unique as they were also available at most mass retailers, drug
and grocery stores.
It also said that Wal-Mart, and not Family Dollar, was the
primary driver for the company's pricing decisions.
A transaction with Dollar General faces little risk of being
stopped by the FTC in the absence of documents that show both
companies only watch each others' pricing practices, said
Jonathan Lewis, an antitrust expert with law firm Baker
Dollar General and Family Dollar offer goods at multiple
price points, while Dollar Tree sticks to a $1 or less format.
Dollar General's shares were up 0.5 percent at $64.36.
DOLLAR TREE FRIENDLIER?
The Dollar Tree bid is friendlier to Family Dollar's
Levine, son of the founder of Family Dollar, would remain
CEO of Family Dollar if it was bought by Dollar Tree.
If Dollar General succeeds in buying Family Dollar, Levine
is widely expected to lose his job, although this has not been
However, Levine stands to make about $745 million from his
stake of 9.3 million shares in Family Dollar, which makes him
the largest shareholder as of late July.
Dollar Tree's cash-and-stock offer of $74.50 per share
proposal would bring him about $50 million less.
He would also be eligible to receive annual salary of at
least $1.2 million and stock options for his continued role as
CEO of the unit.
Nelson Peltz's Trian Fund Management LP, the second-biggest
shareholder in Family Dollar after Levine, declined to comment
on the new offer. It had earlier endorsed Family Dollar's
rejection of Dollar General's bid.
(Additional reporting by Abhirup Roy, Olivia Oran and Diane
Bartz; Editing by Saumyadeb Chakrabarty)