In a statement Friday, Family Dollar's (NYSE:FDO) board unanimously rejected Dollar General's (NYSE:DG) $9.1 billion takeover bid. That was somewhat of a surprise since Dollar General offered a juicier $9.1 billion bid for Family Dollar, which was higher than the recent acquisition offer from Dollar Tree (NASDAQ:DLTR), which came at a price of $8.5 billion.
As a result, Dollar Tree shares were up .31%, Family Dollar shares were down 1.4% and Dollar General was down 3.14% in Friday's session.
That move marks the second time that Family Dollar rejected an unsolicited offer from Dollar General, the top U.S. dollar-store chain due to supposedly antitrust concerns.
Certain Comfort
“There is a very real and material risk that the transaction proposed by Dollar General would fail to close, after a lengthy and disruptive review process,” Family Dollar Chief Executive Officer Howard Levine said in the statement. The Dollar Tree merger, he said, offers “closing certainty.”
With Family dollar’s rejection, it reaffirms its plans to complete the previously-announced $8.5 billion cash and stock deal with Dollar Tree. The transaction was valued at $74.50 per share, which was lower than Dollar General’s offer of $78.50 per share.
The announcement by Matthews, N.C.-based Family Dollar cited the "substantial risk" the Federal Trade Commission could assert that the proposed takeover would mean higher prices for U.S. consumers.
Icahn’s View
On Thursday, the largest stakeholder of Family Dollar, Carl Icahn, finished selling his entire stake in Family Dollar, raking in $200 million. In the midst of the bidding war with Dollar Tree and Dollar General for Family Dollar, there were reports that Mr. Icahn criticized the company’s performance and leadership. On paper, the deal from Dollar General was a better deal for investors and maybe the rejection from Family Dollar tipped Mr. Icahn over the edge and pushed him to get out fast.
“It seems obvious that in a Dollar General/Family Dollar merger, Family Dollar CEO, Levine, would not have any future role,” Icahn said on his blog in August.
Higher Offer
After Family Dollar rejected Dollar General’s offer for a second time, Dollar General increased its price this week to $80 a share in cash, pushing its offer far above DLTR. Along with the sweetened bid, Dollar General said it would sell as many as 1,500 locations to placate regulators, up from 700 in its earlier offer.
It also would pay Family Dollar $500 million if the deal failed to garner approval. The reaction from investors were not good as Family Dollar's share price fell to $79, indicating that investors thought Family Dollar passed up a juicy deal.
If this sweetened offer from Dollar General does not convince Family Dollar's board, then Dollar General could turn hostile and go directly to the shareholders. Earlier this week, Dollar General threatened the company with such action if it was rejected again.
Bottom Line
The increased offer by Dollar General -- now rejected twice -- is a strong indicator that Dollar General will do whatever it takes to acquire Family Dollar. Investors should watch what moves Dollar General make to position itself to acquire or create a hostile takeover for Family Dollar.
We currently have Dollar General as a Zacks rank #3 (hold), Family Dollar as a Zacks rank #3 (hold) and Dollar Tree as a Zacks rank#4 (sell). This bidding war seems far from over and investors should watch how this trio performs in the near term.