New Bids For Family Dollar? Dollar General Joins The Race

There is a new bidder for Family Dollar, the number 2 dollar retailer in the United States.

Dollar General, the number 1 dollar retailer nationwide, has announced their bid of $8.95 billion to acquire Family Dollar, according to the New York Times. The bid, sent in a letter to Family Dollar, trumps the %8.5 billion bid from Dollar Tree, which had already had a deal in place and had laid out plans to merge with Family Dollar.

Under the terms of the offer, Dollar General would pay $78.50 a share in cash. That is more than the $74.50 a share than Dollar Tree’s original cash-and-stock bid was worth when it was announced last month, and significantly more than where Family Dollar was trading before it announced the earlier deal.

Including debt, Dollar General’s offer is valued at $9.7 billion. The company is also willing to pay the $305 million break-up fee that would be owed to Dollar Tree if that deal were broken off.

Dollar General’s latest maneuver all but guarantees a bidding war over the fate of Family Dollar, who had been pressured from both inside and outside their ranks to sell. Carl Icahn, who disclosed he has a stake in Family Dollar, and Nelson Peltz, who gained a board seat with Family Dollar after trying to purchase the company outright three years ago, both expressed concern over Family Dollar’s stock price.

Family Dollar had been deciding on selling themselves for several months now, and had been talking with Dollar Tree since March of this year. This could lead to a Dollar store bidding war.

According to Reuters, Family Dollar’s shares rose 4.5 percent to $79.52 in early trading, above the offer price of $78.50 per share in cash. Dollar General’s shares were up 10.3 percent at $63.40, while Dollar Tree’s shares were down 2 percent at $54.48.

Analysts said a bidding war was in the offing and Dollar General was likely to win.

“I think Dollar Tree would want to come back with something. Both Dollar General and Dollar Tree have some capacity to go a little bit higher with the offer price,” Telsey Advisory Group analyst Joseph Feldman said.

Dollar General said the deal would create a retailer with nearly 20,000 stores in 46 U.S. states and sales exceeding $28 billion. Dollar General also said it would divest up to 700 store to get regulatory approval for the deal. Dollar Tree had recommended the same amount for the same reason.

Goldman Sachs is advising on the offer and, along with Citigroup, is offering to finance the bid. Simpson Thacher & Bartlett is providing legal counsel.

A representative for Family Dollar did not immediately return a request for comment. A spokesman for Dollar Tree declined to comment.