GOODLETTSVILLE, Tenn. -- Dollar General Corp. is weighing a bid for rival Family Dollar Stores Inc. that would challenge fellow channel rival Dollar Tree Inc.'s $8.5 billion takeover of the discount retailer, people with knowledge of the matter told Bloomberg.
Dollar General is working with an adviser to evaluate its options and knows that banks are willing to finance a counterbid, one of the people said, asking not to be identified because the information is private.
Family Dollar last week agreed to be acquired by Dollar Tree after investors Carl Icahn and Nelson Peltz had pushed for a sale.
While Dollar General had earlier passed on the chance to bid for Family Dollar, the company is re-evaluating its options out of concern that the smaller retailer may soon be out of its reach for good, two people told the news agency. There is no guarantee that it will make an offer, the people said, with one putting the chance of a bid at 50%.
While Dollar Tree caters to middle-class consumers and sells most items for $1, the other chains both focus on low-income shoppers and offer more food at various price points.
Both Dollar General and Family Dollar have added tobacco, alcohol and more grocery in recent years.
The combination of Family Dollar and Dollar Tree--the No. 2 and No. 3 dollar store chains--would leapfrog Dollar General in number of stores to become the largest. Goodlettsville, Tenn.-based Dollar General has more than 11,000 stores in 40 states; Matthews, N.C.-based Family Dollar has more than 8,200 stores in 46 states; and Chesapeake, Va.-based Dollar Tree has 5,080 stores in 48 states.
Dollar Tree operates "fixed-price point stores, selling everything for $1 or less," while Family Dollar operates "multi-price point stores providing value-conscious consumers with a selection of competitively priced merchandise in convenient neighborhood stores," the companies said when they announced the $8.5 billion merger agreement in late July. "Dollar Tree's assortment consists of a balance between consumable merchandise and variety/seasonal merchandise. Family Dollar's assortment consists primarily of consumable merchandise and home products."
Dollar General describes itself as "offering products that are frequently used and replenished, such as food, snacks, health and beauty aids, cleaning supplies, basic apparel, housewares and seasonal items at low everyday prices in convenient neighborhood locations."
With more similarities to Family Dollar, Dollar General may be able to extract even greater benefits from a takeover than Dollar Tree through cost cuts, said Poonam Goyal, a senior retail analyst for Bloomberg Intelligence.
"Dollar General and Family Dollar is a match; they are comparable businesses coming together," Goyal said. "While Family Dollar and Dollar Tree are dollar stores, they are very different dollar stores."
Dollar General hasn't approached Family Dollar about its interest yet, one person said. Mary Winn Pilkington, a spokesperson for Dollar General, declined to comment. Representatives for Family Dollar and Dollar Tree also declined to comment.
Sales at the store chains, which specialize in cheap household goods, have slowed since the U.S. economy began improving and consumers became less focused on finding bargains. The chains are still outpacing bigger discount retailers such as Wal-Mart and Target, said the report.
A consolidated dollar channel could also pose more of a threat to the convenience store channel, especially given the chains' increasing focus on traditional c-store products.
If combined, Dollar General and Family Dollar would have about $28 billion in annual revenue, according to data compiled by Bloomberg.
Earlier this year, activist investor Icahn took a 9% stake in Family Dollar and pushed the company to look for a buyer. He then cut his stake, profiting from the run up in shares after the sale to Dollar Tree was announced, said Bloomberg.