According to an article published in Bloomberg on Tuesday August 5th, Dollar General Corp. (NYSE:DG) is considering throwing it’s hat in the ring and making a bid for for Family Dollar Stores, Inc. (NYSE:FDO). Sources that spoke to Bloomberg said Dollar General has hired advisers to evaluate its options and has banks lined up to finance a possible bid.
Analysts note the bid would have to top Dollar Tree Inc.’s $8.5 billion proposed deal for the discount retailer.
Dollar General re-evaluating
Some months ago Dollar General Corp. (NYSE:DG) did their due diligence and decided not to make a bid for Family Dollar, but the sources say the firm is re-evaluating its options given the possibility Family Dollar Stores, Inc. (NYSE:FDO) may be snapped up by Dollar Tree. There is no guarantee that Dollar General will make an offer, the sources said, with one suggesting it was maybe a 50/50 chance.
Investors expecting higher offer
Given that Family Dollar has traded above the $74.50 per share price that Dollar Tree has agreed to pay since the deal was announced on July 28, suggesting that most investors are anticipating a higher offer. Family Dollar Stores, Inc. (NYSE:FDO) shares climbed up above $78 in morning trading after the Bloomberg’s article was published.
Dollar General better match for Family Dollar than Dollar Tree?
Analysts point out that Dollar General Corp. (NYSE:DG) may be a better match for Family Dollar than Dollar Tree based on the closer similarities of their business models.
A merger of Family Dollar and Dollar Tree (currently the No. 2 and No. 3 dollar store chains) would surpass Dollar General to become the dollar store chain with the mos stores.
Poonam Goyal, a senior retail analyst for Bloomberg Intelligence, highlights that given more similarities to Family Dollar, Dollar General is likely to be able to take advantage of more operational synergies from a takeover than Dollar Tree.
Dollar General Corp. (NYSE:DG) focuses on middle-class consumers and sells the majority of products for $1, whereas the other two dollar store chains both focus on low-income shoppers and sell more food products across a range of prices.
“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.”