If the proposed takeover of Family Dollar Stores, Inc. (NYSE:FDO) by Dollar General Corp. (NYSE:DG) stores were to take place, the combination would have more stores in the US than McDonald’s Corporation (NYSE:MCD) locations. And this could be one reason why the proposed merger may not occur.

Family Dollar Stores FDO

Family Dollar cannot accept Dollar General’s offer due to anti-trust concerns

Family Dollar Stores, Inc. (NYSE:FDO) today said its board of directors cannot accept Dollar General Corp. (NYSE:DG)’s $9.1 billion takeover bid due to anti-trust concerns.  Too many of the stores have overlapping territories. A map produced by Marketwatch illustrates how stores east of the Mississippi River overlap.

The report noted Family Dollar, with more than 8,000 stores across 46 states, and Dollar General, with more than 11,500 stores in 40 states, combined have more stores than McDonald’s, which has more than 14,000 total outlets.

While Dollar General, with stores primarily in the Midwest and south, offered to divest stores to alleviate anti-trust concerns, one wonders if the price would ever significantly breach the $1 level?  Thus would anti-trust concerns be mitigated by the very nature of the $1 product price target implied in the store’s name?

Family Dollar Stores, Inc. (NYSE:FDO), which is recommending investors take a lower priced offer from Dollar Tree, which doesn’t have the same overlap issues.

Perhaps the issues with anti-trust could be why Carl Icahn recently cut his entire stake in Family Dollar.

On Wednesday, Reuters reported that activist investor Carl Icahn, who took a 9.4 percent stake in Family Dollar in June, unloaded his entire interest in the position.

Icahn’s stake in Family Dollar

Icahn had established the position in the struggling retailer and then pushed the company to sell itself, which is exactly what is happening.  Then two days before Family Dollar announces it is rejecting the higher stock offer, Icahn exits the position.

The difference between the two prices is significant. Dollar General is offering $80 per share to acquire Family Dollar, while the Dollar Tree deal is significantly lower with an offer at $74.50 per share.  On Wednesday Family Dollar Stores, Inc. (NYSE:FDO) was trading near $80.22, the Reuters report noted.  Today the stock is heading towards the Dollar Tree offer, currently trading near $79 per share, down 1.31 percent on the day.

Other activist hedge fund managers in the stock included Nelson Peltz’s Trian Fund Management, which had a 7.34 percent stake in the firm according to Thompson Reuters data.

The stock was trading near $68 per share most of June, then rocketed to $75.74 on news of the buyout offer in July and has been climbing higher ever since.