Icahn Wins As Dollar Tree To Buy Family Dollar For $8.5 billion

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It looks like Carl Icahn has finally gotten his way in his battle with Family Dollar Stores, Inc. (NYSE:FDO). The company announced early this morning that it will be acquired by competitor Dollar Tree, Inc. (NASDAQ:DLTR). Shares of Dollar Tree rose as much as 6% in pre-market trading this morning, while shares of FDO are soaring 21% at the time of this writing.

Dollar Tree, Inc. (NASDAQ:DLTR) to pay $8.5 billion for Family Dollar Stores, Inc. (NYSE:FDO)

In a press release this morning, Dollar Tree said it will pay approximately $8.5 billion in cash and stock for Family Dollar. The discount retail chain will pay $59.60 per share in cash to Family Dollar stores, plus $14.90 worth of Dollar Tree share for every Family Dollar share they own. This values the deal at around $74.50 per share, about a 23% premium over Family Dollar’s closing price of around $61 on Friday.

In the press release, the companies state that both of their boards of directors have already unanimously approved the deal, which they expect to close by early next year. When the deal closes, current shareholders of Family Dollar will own between 12.7% and 15.1% of the combined company.

Howard Levine and Trian Fund Management and related entities own about 16% of Family Dollar’s shares, and they have entered into voting agreements for the merger.

Expectations for the Family Dollar – Dollar Tree merger

After the merger, the two companies say they will operate more than 13,000 stores in 48 states and five Canadian provinces. The combined company’s annual sales will be more than $18 billion. They plan to run and growth both the Family Dollar and Dollar Tree brands by offering both multi-price and fixed price point formats.

The two discount retail chains expect to see annual run rate synergies of about $300 million by the end of the third year after the deal closes. They expect it to be accretive to cash earnings per share within the first year after the deal closes.

Dollar Tree will finance the deal through a combination of bonds, bank debt and cash on hand. JPMorgan Chase & Co. (NYSE:JPM) has committed to finance the deal. Family Dollar shareholders must still approve the deal.

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