Icahn Exercises Call Options; Owns 9.39% Of Family Dollar

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Activist investor Carl Icahn and his affiliates beneficially own an aggregate 10,691,011 shares or 9.39% of the outstanding shares of Family Dollar Stores, Inc. (NYSE:FDO) based on his latest 13D filing with the Securities and Exchanges Commission (SEC).

The total amount of Icahn’s stake in Family Dollar Stores, Inc. (NYSE:FDO) was $622 million including commissions, premiums and exercise price for options to purchase shares.

The activist investor and his affiliates used their general working capital in purchasing their stake in the discount store operator. They also obtained a portion of the purchase price of their stake in Family Dollar Stores, Inc. (NYSE:FDO) through margin borrowing.

The filing also indicated that Icahn’s group exercised all of the call options listed in the table under item 5 (c) of their initial 13D filing with the securities regulator and acquired 9,378,064 shares on July 2, 2014. Following the exercise of all their call options, all of the put options listed in the initial 13D filing had been terminated in accordance with the terms.

Icahn sees long-term potential Family Dollar’s industry

In his initial 13D filing, Icahn stated that he perceived “great long-term potential” in the industry of Family Dollar Stores, Inc. (NYSE:FDO).

The activist investor believed that the current situation of the discount store operator is similar the conditions recently faced by several companies including Biogen Idec Inc (NASDAQ:BIIB), Chesapeake Energy Corporation (NYSE:CHK), CVR Energy, Inc. (NYSE:CVI), Forest Laboratories, Inc. (NYSE:FRX).

Icahn also indicated his intention to talk to the board of directors and management of Family Dollar Stores, Inc. (NYSE:FDO) regarding its business and strategies to enhance shareholder value, which may include pursuing operating initiatives or exploring strategic alternatives. He might also seek representation to the board of the company if appropriate.

Family Dollar adopts poison pill

The board of directors of Family Dollar Stores, Inc. (NYSE:FDO) adopted a one-year rights plan also known as “poison pill” to prevent shareholders from acquiring more than 10% stake in the company. The move came after Icahn acquired his position in the company.

Icahn urges Family Dollar’s CEO to seek sale immediately

Last month, Icahn sent a letter to Howard Levine, the CEO of Family Dollar Stores, Inc. (NYSE:FDO) urging him to put the discount store operator for sale “immediately” and to add the three executives he is proposing to serve as directors of the board to accelerate the process.

Icahn said, “An overwhelming majority of the company’s shareholders would be in favor of a sale. There would be significant interest from strategic and financial buyers who could recognize massive synergies from the acquisition.”

In response to Icahn’s letter, the board of directors of Family Dollar Stores, Inc. (NYSE:FDO) said they are “committed to acting in the best interest” of the company and its shareholders. According to them, the company is conducting a thorough review of its business to determine opportunities to strengthen its value proposition, increase operational efficiencies and improve financial performance.

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