Dollar General Corp. (NYSE:DG) management said they will continue to pursue a buyout of Family Dollar Stores, Inc. (NYSE:FDO) even though the company seems intent on a deal with Dollar Tree, Inc. (NASDAQ:DLTR). Chairman and CEO Rick Dreiling said in a statement that the financial benefits of their offer to shareholders of Family Dollar are “indisputable” and that the combination of the two discount retail chains would “unlock tremendous value” for them.

Dollar general

Best suitor for Family Dollar

Analysts tend to say that a merger between Dollar General and Family Dollar is better than one between Dollar Tree and Family Dollar. Activist investor Carl Icahn, who earlier had praised the Dollar Tree deal, has changed his view now that Dollar General is pursing Family Dollar. His original argument had been for a Dollar General – Family Dollar combination, although it was unclear previously that Dollar Tree was even interested.

The deal with Dollar Tree comes with a breakup fee, which Dollar General would have to pay if it wins Family Dollar. In spite of that fee, however, analysts have sided with Dollar General, which made an all-cash offer of $78.50 per share. Dollar Tree’s bid is only for $74.50 per share and includes both stock and cash.

The main concern raised by Family Dollar’s board is antitrust problems. However, Dollar General said it would be willing to shut down 700 stores in order to make the deal happen.

Dollar General meets earnings estimates

This morning Dollar General released its latest earnings report along with the statement about continuing interest in acquiring Family Dollar. The company said net income rose by more than 2% to $251 million. More shoppers spending more money at the retail chain’s stores drove the increase. In the same quarter a year ago, Dollar General reported $245 million in net income.

The company said sales rose by about 7% to $4.7 billion, which was in line with consensus estimates and compared to $4.4 billion in the same quarter a year ago. Earnings per diluted share were 83 cents, meeting consensus estimates.

For the full fiscal year, Dollar General projects a 3% to 3.5% increase in same store sales. In the second quarter, same store sales climbed 2.1%, due largely to higher average transaction values and higher customer traffic. Another contributor was tobacco sales, as well as sales of perishables, snacks and candy. New store sales also contributed to the sales increase.