GOODLETTSVILLE, Tenn. -- In a letter to the Family Dollar board, Dollar General Corp. has made a proposal to acquire Family Dollar Stores Inc. for $78.50 per share in cash, in a transaction valued at $9.7 billion.
Dollar General's all-cash proposal would provide Family Dollar shareholders with a "substantially superior" valuation to the $74.50 per share cash and stock offer announced by Dollar Tree, Inc. on July 28, 2014, Dollar General said.
The combination of Dollar General and Family Dollar would solidify Dollar General's position as the largest small-box discount retailer in the United States, with nearly 20,000 stores in 46 states and sales of more than $28 billion.
The company said it has undertaken significant economic and antitrust analysis with respect to the transaction, and it is confident it can "quickly and effectively" address any potential antitrust issues.
Dollar General is prepared to commit to divest up to 700 retail stores in order to achieve the requisite approvals, it said, which is approximately the same percentage of the total combined stores represented by the 500 U.S. store divestiture commitment in the Dollar Tree merger agreement.
Dollar General also said that it is prepared to enter into a definitive merger agreement that would be substantially similar to the one entered into between Dollar Tree and Family Dollar, modified as necessary to accommodate Dollar General's all-cash proposal, the antitrust matters described above and to provide a time period to close the proposed transaction consistent with that set forth in the existing agreement. In addition, Dollar General is prepared to revise the agreement to permit Family Dollar to continue to pay its regular quarterly cash dividend through closing on terms consistent with past practice.
Continued on next page.
"For Family Dollar shareholders, our proposal … would provide Family Dollar shareholders with a substantial premium and immediate liquidity for their shares," said Rick Dreiling, Dollar General's chairman and CEO. "For Dollar General shareholders, the proposed combination of Dollar General and Family Dollar would be a significant strategic opportunity to create immediate and lasting shareholder value. For both Dollar General and Family Dollar customers, we would be able to provide better value and greater selection."
Dollar General said it believes the highly complementary nature of the two companies would create a unique opportunity to deliver value to shareholders and customers.
The business models and product mixes of Dollar General and Family Dollar are highly complementary. There is opportunity to more efficiently and effectively manage the Family Dollar portfolio of stores given Dollar General's strong track record of success in improving its own profitability since 2008, the company said.
The proposed transaction would be expected to generate significant synergies of $550 million to $600 million on an annual run-rate three years post-closing. Dollar General has developed extensive integration plans across work streams. The expected synergies would be derived from sales growth driven by an improved merchandise offering and store presentation, purchasing and sourcing efficiencies, distribution and transportation optimization and administrative savings.
Rick Dreiling, who led the management team that transformed Dollar General starting in 2008, has agreed to postpone his previously announced retirement and remain as chairman and CEO of the combined company until May 2016, if a merger agreement is signed, in order to oversee the successful integration of the two companies. Beyond that date, Dreiling has also agreed that, if asked by the board and elected by shareholders, he would remain as a board member and would be willing to serve as chairman.
The proposed transaction values Family Dollar at an enterprise value of approximately $9.7 billion, and it represents an enterprise value to EBITDA (for the last 12 months ending May 31, 2014) multiple of 11.6x. The proposal has the unanimous approval of the Dollar General board.
Click here to read the full letter to the Family Dollar board.
Matthews, N.C.-based Family Dollar offers a mix of name-brand and private-brand merchandise for shoppers in more than 8,100 stores in rural and urban settings across 46 states.
Goodlettsville, Tenn.-based Dollar General offers products that are frequently used and replenished, such as food, snacks, health and beauty aids, cleaning supplies, basic apparel, house wares and seasonal items at low everyday prices in convenient neighborhood locations. It has more than 11,000 stores in 40 states. In addition to private brands, Dollar General sells products from manufacturers such as Clorox, Energizer, Procter & Gamble, Hanes, Coca-Cola, Mars, Unilever, Nestle, Kimberly-Clark, Kellogg's, General Mills and PepsiCo.
Members help make our journalism possible. Become a CSP member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.