Dollar General (DG) Makes Aggressive Offer for Family Dollar Stores, Inc. (FDO) in Attempt to Solidify Leading Market Position

Dollar General (NYSE:DG) has made an aggressive move to acquire Family Dollar Stores, Inc. (NYSE:FDO), offering $78.50 in cash per share for the discount retailer. The deal values Family Dollar at $9.7 billion, and greatly improves upon the $74.50 offer in cash and stock made for Family Dollar last month by Dollar Tree, Inc. (NASDAQ:DLTR). The big question now is how Dollar Tree will respond, which was discussed this morning on CNBC with Telsey Advisory Group’s assistant director of research Joseph Feldman.

Dollar General Corp. (NYSE:DG)

“When we stressed both versions of the offers, certainly the Dollar Tree’s offer in the current structure that they have could probably get up close to $90. And we thought Dollar General could be around the same, a little bit higher, low $90’s probably,” Feldman said.

Dollar General (NYSE:DG) announced their offer this morning via a press release, and in an open letter to the Family Dollar board of directors. The valuation of Family Dollar by Dollar General (NYSE:DG) represents a premium of 3.2% over Family Dollar’s Friday closing price of $76.06. The stock has since soared to $79.90 in early morning trading.

“We have the utmost respect for Family Dollar, its leadership and its employees. We look forward to expeditiously entering into constructive discussions with Family Dollar in order to sign a definitive merger agreement that provides enhanced value to Family Dollar shareholders and enables Dollar General to realize the benefits of this combination,” Rick Dreiling, Dollar General’s Chairman and Chief Executive Officer said in the press release.

As per their proposal, Dreiling would remain as the CEO of the newly combined company through May, 2016, foregoing his previously announced retirement to help oversee and ease the transition of the newly merged companies.

For Dollar General (NYSE:DG), the proposed merger would help solidify their position as the largest small-box retailer in the United States, giving the newly merged company nearly 20,000 stores in 46 states, along with over 160,000 employees and more than $28 billion in sales annually. It would increase the earnings of Dollar General by double digits in the first year after the deal closes.

Disclosure: none

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