Dollar General Corp. (NYSE:DG) announced an all-cash tender offer for Family Dollar Stores, Inc. (NYSE:FDO) on Wednesday. Analysts at Jefferies say the hostile bid came earlier than they expected. However, the story is far from over, as analysts at RBC Capital Markets say the antitrust concerns raised by Family Dollar’s board seem to be legitimate.

Dollar General Cuts Right To The Chase With Family Dollar, FTC

Also Sterne Agee analysts think Dollar Tree, Inc. (NASDAQ:DLTR) is still a winner even if it doesn’t prevail in the fight to acquire Family Dollar Stores, Inc. (NYSE:FDO).

Family Dollar rejects Dollar General—again

In spite of Family Dollar’s resistance to an acquisition by Dollar General Corp. (NYSE:DG), RBC analysts think investors are already pricing in a win by Dollar General rather than Dollar Tree. Dollar General’s offer is $80 per share in cash, compared to Dollar Tree’s offer of $74.50 per share, with 80% in cash and 2% in equity.

In a bid to show just how serious it is, Dollar General is also offering a $500 million reverse breakup fee if the deal doesn’t close because regulators block it. The retail chain also said it will close up to 1,500 stores in order to appease the Federal Trade Commission.

Dollar General goes to Family Dollar shareholders

In their report dated Sept. 10, 2014, Jefferies analysts Daniel Binder and associates John Gugliuzza and Dolph Warburton said Dollar General went to Family Dollar’s board earlier than they expected. They thought the retail chain would increase the number of stores it was willing to divest one more time before going hostile.

However, they think the tactic is smart because it kicks off the antitrust review process. As a result, it could extend the tender if a deal looks possible or end it quickly if the FTC wants too much in order to allow it.

What about regulators?

When Family Dollar Stores, Inc. (NYSE:FDO)’s board rejected Dollar General Corp. (NYSE:DG)’s new bid, they cited concerns about regulatory challenges again. In his report dated Sept. 10, 2014, RBC analyst Scot Ciccarelli said those concerns seem valid. If Dollar Tree wins, the Family Dollar brand will keep going, but if Dollar General wins, the brand could eventually disappear entirely.

Currently about 6,000 of Family Dollar’s 8,200 stores are located within three miles of a Dollar General store. Also the two companies are currently pricing against each other, while Dollar Tree’s pricing structure differs from that of Family Dollar. In addition, Dollar Tree said it will divest as many stores as necessary to close the deal but that it doesn’t think it will have to close any.

In order to determine whether to approve a merger between Dollar General and Family Dollar Stores, Inc. (NYSE:FDO), the FTC will look at what kind of anticompetitive effect it will have on the markets. Ciccarelli notes that in the past, regulators have blocked proposed mergers of companies that operate in the same market and price against each other. The only exception has been in cases in which the two companies prove that others provide enough competition in the overlapping markets.

Cicarelli said Dollar General Corp. (NYSE:DG) is trying to speed up the process by going hostile on Family Dollar but notes that there are inherent risks. He thinks Dollar General can outbid Dollar Tree, although Dollar General won’t be able to see Family Dollar’s books.

What will happen to Dollar Tree?

So if Dollar General wins the bidding war, does that mean bad things for Dollar Tree? In their report also dated Sept. 10, 2014, Sterne Agee analysts Charles Grom, Renato Basanta and John Parke said that they would remain long on Dollar Tree even if Dollar General Corp. (NYSE:DG) wins. They believe many former shareholders of Dollar Tree have already exited the stock after its bid for Family Dollar Stores, Inc. (NYSE:FDO). They see those investors coming back if Dollar General wins.

In addition, Dollar Tree gets $305 million as a breakup fee and will probably leverage its position by starting a “very large” share repurchase program, in their view. Also they believe that Dollar Tree is “very sound,” noting that its comparable sales are accelerating as the retail chain invests in higher quality products.