Dollar General Corp. (NYSE:DG) offered to buy Family Dollar Stores, Inc. (NYSE:FDO) for $78.50 per share, just under $9 billion and about a 5% premium over the $74.50 per share offer made by Dollar Tree, Inc. (NASDAQ:DLTR) late last month. Just as important for many investors, Dollar General CEO Rick Dreiling said that he would stay on until May 2016 to manage the transition, reports Michael Calia for The Wall Street Journal. Family Dollar is up 4.61% to $79.57, Dollar General is up 10.5% to $63.50 and Dollar Tree is down 2% to $54.50 in early morning trading.
Investors knew that a higher bid for Family Dollar could be in the works
Activist hedge fund manager Carl Icahn has been fighting for months to convince Family Dollar Stores, Inc. (NYSE:FDO) management to put itself up for sale, citing underperformance relative to its peers, while pushing his stake past 9% in early July. Icahn pulled back on that position late last month shortly after Family Dollar received the $74.50 per share bid from Dollar Tree.
But some have argued that a Dollar General Corp. (NYSE:DG) bid makes more sense because it has more in common with Family Dollar Stores, Inc. (NYSE:FDO) and would be able to take better advantage of ‘operational synergies’ while greatly expanding its footprint. While no one knew for that a Dollar General bid was coming, most investors realized that it was a distinct possibility, as evidenced by Familly Dollar trading above $74.50 in recent weeks.
Dreiling grew Dollar General sales 80% since 2008
When Dollar General Corp. (NYSE:DG) CEO Rick Dreiling announced that he would retire in May 2015, or earlier if the board found a successor, the company’s stock price fell sharply. Dreiling took the helm of Dollar General in January 2008 as the financial crisis was really taking hold (a turn that probably benefited discount stores like Dollar General) and grew the company’s annual sales by 80% to $17.5 billion in 2013 and the number of stores to more than 11,000 in 40 states.
If Family Dollar Stores, Inc. (NYSE:FDO) accepts the Dollar General Corp. (NYSE:DG) bid, and barring a counteroffer from Dollar Tree, Inc. (NASDAQ:DLTR) or another interested buyer it’s hard to see them turning it down, investors will be a lot happier knowing that Dreiling is still in charge while it integrates stores from the country’s third largest discount chain into its business.