Ear Hustle

Dollar Tree Acquisition Of Family Dollar Approved By Family Dollar’s Shareholders

Family Dollar shareholders voted Thursday to sell the Matthews-based retailer to rival Dollar Tree, ending almost 56 years of local control of a well-known company and months of uncertainty about its fate.

Virginia-based Dollar Tree has said the Family Dollar name will live on, with many of Family Dollar’s stores remaining. While Dollar Tree CEO Bob Sasser will be head of the combined company, Family Dollar CEO Howard Levine will join the board of directors and continue to help manage Family Dollar.

About 74 percent of Family Dollar shares were voted in favor of the deal, meaning Family Dollar successfully fended off a hostile bid from challenger Dollar General. Although Dollar General offered more money, Dollar Tree’s bid was more likely to be approved by antitrust regulators, Levine said.

The vote had been widely expected to go Dollar Tree’s way, after Dollar General declined last week to offer shareholders more money and said it would need more time to get regulatory approval. Dollar General CEO Rick Dreiling criticized Thursday’s vote in a statement.

“Today’s vote is a loss not only for Family Dollar shareholders, but also for consumers across the country who will not have the opportunity to benefit from the cost savings and efficiencies that we believe would have been created by a merger between Dollar General and Family Dollar,” Dreiling said. “Family Dollar’s lack of engagement and a contracted transaction timeline ultimately prevented us from completing this transaction.”

Levine said after the vote that the companies would maintain a presence at both their headquarters for some time, though he didn’t specify how many employees are expected to remain in Matthews.

“Both companies have a significant presence in their local communities,” said Levine. “In the foreseeable future, both headquarters will be maintained.”

Levine said Family Dollar’s merchandising and store operations teams, the largest part of its employment, would remain separate from Dollar Tree’s because the companies have quite different business models. He acknowledged there will be some overlap in the executive ranks, but said he expects most Family Dollar employees will continue to have “significant career paths.”

Family Dollar employs about 1,300 corporate workers at its corporate offices on Monroe Road. The company’s Matthews head count is down by about 100 since the takeover battle started, which Levine attributed in large part to uncertainty around the company’s fate.

The Dollar Tree deal could close as soon as March, the companies said.

Several dozen executives, shareholders and Family Dollar board members attended Thursday’s shareholder meeting at the Mint Museum on Randolph. One shareholder challenged Levine during a question-and-answer period, asking why he and the board recommended Dollar Tree’s deal over the higher bid from Dollar General.

“Dollar General offered us $80 per share, cash,” Gary Burgess told Levine. Burgess said he and his wife own 200 shares of the retailer. “That’s a heck of a lot better than $76.50,” the final value of Dollar Tree’s offer, said Burgess.

Levine said he agreed that Dollar General’s higher, all-cash bid looked tempting. But he again said the Federal Trade Commission was sure to block Dollar General.

“I agree with you, the economics of the deal, on paper, is better than the current deal,” said Levine. “But you also have to consider whether you could get the deal done … Dollar General itself is at a roadblock with the FTC.”

Burgess pressed Levine to explain why Dollar General’s deal, which would have included a $500 million breakup fee if Dollar General couldn’t close it, wasn’t better than Dollar Tree for shareholders.

“I own a few shares also, so I care how this thing turns out,” said Levine, who is the largest single shareholder. He owns almost 8.8 million shares, 7.7 percent of the total, worth $672 million.

“I completely disagree with your analysis, and would suggest you do some research,” Levine told Burgess.

After the meeting, Burgess said as CEO, Levine has “responsibility for care, loyalty and disclosure,” but failed on the third point.

“He has a responsibility to shareholders to inform them. He did not inform me,” Burgess said.

A Charlotte story with a bumpy end

Family Dollar was founded in 1959 in Charlotte by Leon Levine, now a prominent local philanthropist. The company grew steadily and topped 8,000 stores under the leadership of Leon Levine’s son and successor, Howard.

But Family Dollar’s performance suffered in recent years, as the company tried a strategy focused on more promotions and selling more consumable goods, such as food and tobacco. While sales rose, profit margins fell, putting the retailer under pressure to improve or sell itself to a rival.

In July, Family Dollar agreed to sell itself for $8.5 billion to Virginia-based Dollar Tree, one of its two main rivals. But Tennessee-based Dollar General – the largest dollar store operator – soon stepped in with an unsolicited rival bid. When Family Dollar said no, Dollar General made a hostile $9.1 billion bid to try to break up the Dollar Tree deal and acquire Family Dollar itself.

Levine argued that the FTC was likely to block Dollar General, which operates under a very similar business model to Family Dollar and owns thousands of locations that overlap with the Matthews retailer.

But activist investor Carl Icahn, who took a major stake in the company and pushed hard for Dollar General, argued that Levine was letting his family ties and desire to stay with the company cloud his judgment. He publicly accused Levine of putting his interests before those of shareholders.

After the vote Wednesday, Levine pushed back against those accusations.

“That’s just completely false,” said Levine. “We were open to doing a deal with either company.”

He said that as a major shareholder, he would have made more money personally going with Dollar General’s higher offer.

Both Dollar General and Family Dollar sell a variety of items under $10, from groceries to cleaning products and electronics, to households on tight budgets. At Dollar Tree, everything is $1 or less and the company sells an array of items that fit that price constraint.

Federal regulators could forbid such a deal due to antitrust concerns, or make Dollar General sell thousands of stores, making a deal less financially appealing.

While Dollar General insisted Levine’s concerns were overblown, the company said last week that it would still need more than a month to learn whether the FTC would allow or block a deal. Dollar Tree’s CEO said his company would back out of its Family Dollar acquisition and seek a $305 million breakup fee if Family Dollar delayed its shareholder vote further.

With Dollar General unable to assure shareholders it could close a deal, Family Dollar shareholders were left to choose between a lower, but more certain, offer from Dollar Tree and a higher, but much more risky, offer from Dollar General.

Levine said that though it was “painful getting here,” he was excited after the vote.

“I’m looking forward to getting this done and moving on with life,” said Levine.

Source: Charlotte Observer

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