Family Dollar Stores said on Friday that its board of directors could not accept Dollar General’s $9.1 billion offer because of antitrust concerns as the dollar store war continued.
Dollar General had recently increased its bid for Family Dollar, offering $80 a share in cash, up from $78.50 a share, and saying it would be willing to sell 1,500 stores to appease federal regulators and pay $500 million to Family Dollar if the transaction is upended for antitrust reasons.
Dollar General has been trying all summer to break-up the deal that rival dollar-store chain Dollar Tree has struck to buy Family Dollar for $74.50 per share.
“Our board of directors, with the assistance of outside advisors and consultants, reviewed all aspects of Dollar General’s revised proposal and unanimously concluded that it is not reasonably likely to be completed on the terms proposed,” said Family Dollar CEO Howard Levine, in a statement. “There is a very real and material risk that the transaction proposed by Dollar General would fail to close, after a lengthy and disruptive review process.”
Some people, like billionaire investor Carl Icahn, have suggested that Levine has been motivated to save his own job—Levine is unlikely to retain a role with Dollar General if it is successful in buying Family Dollar. But the decision to reject Dollar General’s offer has been backed by a prominent activist hedge fund, Trian Fund Managmenet, which has a seat on Family Dollar’s board.
“Dollar Tree has taken the antitrust risk off the table by committing to divest as many stores as necessary to obtain antitrust clearance,” said Ed Garden, Trian’s co-founder who sits on Family Dollar’s board and voted to reject the Dollar General deal. “Dollar General’s revised proposal, on the other hand, does not eliminate regulatory risk for Family Dollar shareholders. Dollar General has repeatedly stated that antitrust is not a risk, yet they have put forth proposals that require Family Dollar shareholders to bear the ultimate risk.”
Garden also dismissed Dollar General’s offer to pay a reverse break-up fee of $500 million if its deal fails for antitrust reasons. “Receiving a reverse breakup fee with an after-tax value of less than $3 a share does virtually nothing to compensate the Family Dollar shareholders for assuming that risk,” Garden said.
