Family Dollar Stores agreed to sell to competitor Dollar Tree in a cash-and-stock deal valued at $8.5 billion. The boards of both companies approved the merger unanimously and announced their decision Monday.
The agreement is valued at $74.50 a share, a nearly 23 percent premium over Family Dollar’s closing price Friday, reports USA Today. Shareholders in the discount store will receive $59.60 in cash and $14.90 in Dollar Tree shares.
In a press release announcing the merger, Dollar Tree CEO Bob Sasser called the deal a “transformational opportunity,” adding, “This acquisition will extend our reach to lower-income customers and strengthen and diversify our store footprint.”
The deal comes after months of Family Dollar struggling to attract customers. It announced an expansion last year that included tripling its store footprint, but backed off the plan in April. Instead, the company announced the closure of 370 stores after a disappointing second quarter.
Billionaire investor Carl Icahn, who has a 9.4 percent stake in the company, encouraged Family Dollar Stores CEO Howard Levine to sell the company and replace board members. In a statement, Levine said the acquisition “represents the successful culmination of a comprehensive strategic review process” the board began in the winter.” He added, “This combination will enable Family Dollar to accelerate efforts to improve the business.”
The Wall Street Journal notes that a deal between Family Dollar Stores and Dollar Tree would create a 13,000 store company with the ability to command better prices from suppliers. It would also help Dollar Tree access more urban markets and have more flexibility in its prices.
While separated, the two companies have already put pressure on discount giant Walmart with their smaller stores and lower prices. However, they have also been pressured by slowing sales growth. The combined company would garner $18 billion in sales and be a better competitor to larger rival Dollar General, along with big box stores like Walmart and Target.
Family Dollar sells wares at a range of discounted prices and targets the urban and rural poor, while Dollar Tree sells all items for a dollar or less and focuses on suburban markets. Sasser stressed to the Journal that the company plans to maintain each brand, because the two chains don’t have much overlap.
Executives also don’t plan to close any stores. Instead, they may turn some Family Dollar stores into Dollar Trees, or vice versa, if the store is not doing well how it is.
[Image by Bart Everson]