Family Dollar Stores, Inc. (NYSE:FDO) has rejected the $9 billion buyout offer from Dollar General Corp. (NYSE:DG), citing concerns that the merger of the nation’s two largest discount retailers might not pass anti-trust review, sending both stock slightly down in trading today.

Family Dollar Stores FDO

“Our board reviewed, with our advisers, all aspects of Dollar General’s proposal and unanimously concluded that it is not reasonably likely to be completed on the terms proposed,” said Family Dollar CEO Howard Levine, report Matt Townsend and David Welch for Bloomberg.

Discount retail CEOs are talking past each other

Dollar General Corp. (NYSE:DG) CEO Rick Dreiling has said that he believes the store divestitures included in the deal make anti-trust regulations a non-issue, but there has been speculation that Family Dollar Stores, Inc. (NYSE:FDO) has been trying to convince Dollar General to accept the risk by paying Family Dollar a fee if the deal does get blocked. Levine has said that the Dollar General proposal didn’t address anti-trust concerns at all.

For now it’s a case of he said/she said, but if Levine really did want the deal to go through, today’s blanket rejection doesn’t seem like the way to do it. More likely this is another incident in a string of reportedly tense negotiations, not a single deal breaker that couldn’t be worked out.

Icahn has been critical of Family Dollar management

Activist investor Carl Icahn, who picked up a 9.4% stake in Family Dollar Stores, Inc. (NYSE:FDO) in June, believes that Levine is just trying to block the Dollar General Corp. (NYSE:DG) deal because it would push him to the sidelines (where, incidentally, Icahn thinks he belongs) while the Dollar Tree, Inc. (NASDAQ:DLTR) would keep him in place as Family Dollar CEO even after the acquisition. There doesn’t seem to be another justification for Levine to turn down a 5% premium (Dollar General also included $305 million in breakup fees to cut in on Dollar Tree’s deal).

If there’s one reason to believe that the rejection announced by Family Dollar Stores, Inc. (NYSE:FDO) isn’t the end of the story, it’s that Icahn isn’t exactly known for shying away from a fight. The market’s rather mild reaction to such big news probably take Icahn’s reputation into account, and the blog writing, TV appearances, and eventual proxy fight that could easily be in the pipeline.