Dollar Tree Buys Family Dollar for $8.5B
Dollar Tree, Inc. and Family Dollar Stores, Inc. have entered into a definitive merger agreement under which Dollar Tree will acquire Family Dollar in a cash and stock transaction valued at $8.5 billion. The value of the consideration is $74.50 per share, a 22.8 percent premium over Family Dollar's closing price as of July 25, 2014.
"This is a transformational opportunity," states Bob Sasser, Dollar Tree's chief executive officer. "With the acquisition of Family Dollar Stores, Dollar Tree will become a leading discount retailer in North America, with over 13,000 stores in 48 states and five Canadian Provinces, sales of over $18 billion, and more than 145,000 associates on our team. We will continue to operate under the Dollar Tree, Deals, and Dollar Tree Canada brands, and when this transaction is complete, we will operate under the Family Dollar brand as well. Throughout our history, we have strived continuously to evolve and improve our business. This acquisition, which enhances our footprint and diversifies our company, will enable us to build on that progression, and importantly, positions Dollar Tree for accelerated growth. By offering both fixed-price and multi-price point formats and an even broader, more compelling merchandise assortment, we will be able to provide even greater value and choice to a wider array of customers. Dollar Tree has a long record of consistent, profitable growth, strong financial performance, prudent capital management, and outstanding total shareholder returns. The acquisition of Family Dollar is consistent with our vision to be the leader in value retailing."
The transaction, which has been unanimously approved by the Boards of Directors of both companies, is expected to close by early 2015, at which time the Family Dollar shareholders will receive $59.60 in cash and $14.90 equivalent in Dollar Tree shares, subject to the collar described below. At closing, Family Dollar shareholders will own no less than 12.7 percent and no more than 15.1 percent of the outstanding common stock of Dollar Tree. Howard R. Levine and Trian Fund Management, L.P. and funds managed by it, which collectively own approximately 16 percent of the outstanding stock of Family Dollar, have entered into voting agreements in support of the merger.
What does this mean for the retail landscape?
According to IBISWorld Retail Analyst Zeeshan Haider, “Dollar Tree’s planned takeover of Family Dollar will likely fundamentally change the structure of the Dollar and Variety Stores industry. The merger is also likely to create significant competition for big box retailers like Walmart.”
He continues, “This merger will likely result in the combined enterprise closing down many of its stores in order to prevent cannibalization of sales, which means a decline in the overall number of industry establishments and the number of people employed by this industry. Additionally, the combined enterprise is likely to invest heavily in its in-store ambiance and customer service in order to cater to the new class of customers it acquired during the recessionary years to keep hold of their spending dollars,” Haider explains.
Haider also forecasts that an increase in industry consolidation because of the proposed merger is likely to prompt further consolidation in the industry: “The popularity of Walmart’s neighborhood format small-scale stores and a consistent rise in their earnings is likely to generate further interest from big box retailers and may result in a hostile takeover of one of the major players in the industry by a large retailer such as Walmart or Target. However, the success of the industry depends on its ability to retain customers it acquired during the recession, which will require it to remove the stigma associated with shopping at dollar stores, while it tries to fend off external competition from its traditional rivals.”
To read more about the strategic rationale behind the merger, click here.
"This is a transformational opportunity," states Bob Sasser, Dollar Tree's chief executive officer. "With the acquisition of Family Dollar Stores, Dollar Tree will become a leading discount retailer in North America, with over 13,000 stores in 48 states and five Canadian Provinces, sales of over $18 billion, and more than 145,000 associates on our team. We will continue to operate under the Dollar Tree, Deals, and Dollar Tree Canada brands, and when this transaction is complete, we will operate under the Family Dollar brand as well. Throughout our history, we have strived continuously to evolve and improve our business. This acquisition, which enhances our footprint and diversifies our company, will enable us to build on that progression, and importantly, positions Dollar Tree for accelerated growth. By offering both fixed-price and multi-price point formats and an even broader, more compelling merchandise assortment, we will be able to provide even greater value and choice to a wider array of customers. Dollar Tree has a long record of consistent, profitable growth, strong financial performance, prudent capital management, and outstanding total shareholder returns. The acquisition of Family Dollar is consistent with our vision to be the leader in value retailing."
The transaction, which has been unanimously approved by the Boards of Directors of both companies, is expected to close by early 2015, at which time the Family Dollar shareholders will receive $59.60 in cash and $14.90 equivalent in Dollar Tree shares, subject to the collar described below. At closing, Family Dollar shareholders will own no less than 12.7 percent and no more than 15.1 percent of the outstanding common stock of Dollar Tree. Howard R. Levine and Trian Fund Management, L.P. and funds managed by it, which collectively own approximately 16 percent of the outstanding stock of Family Dollar, have entered into voting agreements in support of the merger.
What does this mean for the retail landscape?
According to IBISWorld Retail Analyst Zeeshan Haider, “Dollar Tree’s planned takeover of Family Dollar will likely fundamentally change the structure of the Dollar and Variety Stores industry. The merger is also likely to create significant competition for big box retailers like Walmart.”
He continues, “This merger will likely result in the combined enterprise closing down many of its stores in order to prevent cannibalization of sales, which means a decline in the overall number of industry establishments and the number of people employed by this industry. Additionally, the combined enterprise is likely to invest heavily in its in-store ambiance and customer service in order to cater to the new class of customers it acquired during the recessionary years to keep hold of their spending dollars,” Haider explains.
Haider also forecasts that an increase in industry consolidation because of the proposed merger is likely to prompt further consolidation in the industry: “The popularity of Walmart’s neighborhood format small-scale stores and a consistent rise in their earnings is likely to generate further interest from big box retailers and may result in a hostile takeover of one of the major players in the industry by a large retailer such as Walmart or Target. However, the success of the industry depends on its ability to retain customers it acquired during the recession, which will require it to remove the stigma associated with shopping at dollar stores, while it tries to fend off external competition from its traditional rivals.”
To read more about the strategic rationale behind the merger, click here.