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News & Politics News & Politics

Dollar Tree to buy Family Dollar to stave off competition

Posted by on Jul. 29, 2014 at 1:03 AM
  • 8 Replies
Reuters
A view of the sign outside the Dollar Tree store in Westminster
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A view of the sign outside the Dollar Tree store in Westminster, Colorado February 26, 2014. REUTERS/Rick …

By Devika Krishna Kumar and Ramkumar Iyer

(Reuters) - Dollar Tree Inc agreed to buy rival discount chain Family Dollar Stores Inc for $8.5 billion to fend off growing competition from Wal-Mart Stores Inc and fellow discounter Dollar General Corp .

Dollar stores have struggled in a weak U.S. economy as Wal-Mart and other large retail chains chase penny-pinching consumers by offering more items priced at $1 or less.

The deal will give Dollar Tree more than 13,000 stores across the United States and Canada, vaulting the company ahead of Dollar General to become North America's biggest discount retailer, with more than $18 billion in annual sales.

While the sale is a big win for Family Dollar's largest shareholder, Carl Icahn, the activist investor responded to the offer by saying there were "a handful of potential buyers" that he believed would be a better fit.

"(We) are hopeful that one or more of them will surface," Icahn said in a statement. He had touted Dollar General as a potential buyer.

Family Dollar shares closed up 25 percent at $75.74, above the cash-and-stock offer that valued the company at $74.50 per share.

Dollar Tree shares closed up 1.2 percent at $54.87. Dollar General and Wal-Mart shares closed slightly down.

Dollar General and Wal-Mart declined to comment.Combined, the three Dollar chains annual sales total about $35 billion, less than a tenth of Wal-Mart's $473 billion.

Icahn stands to make about $200 million from the deal, a gain of about 32 percent on the price at which he bought his 9.4 percent stake in Family Dollar this year, according to Reuters calculations.

NEW SHERIFF

Dollar Tree sells a mix of consumables in suburban stores across most U.S. states, as well as discretionary items such as gifts, party goods and greeting cards. Everything has a price tag of $1 or less.

Most Family Dollar stores are in low-income neighborhoods. Its presence is biggest in Texas and the eastern United States, where it mainly sells lower-margin food and household products.

"This acquisition will extend our reach to lower-income customers," Dollar Tree Chief Executive Bob Sasser said.

Family Dollar, which also sells many items at more than $1, has been struggling to reverse declining sales and earnings. The company has slashed prices on 1,000 basic items, cut jobs and shut hundreds of stores.

"With a new sheriff in town, Family Dollar will be a much sharper competitor," Sterne Agee & Leach analysts wrote in a note.

Sasser said it was "too early to say" whether Dollar Tree planned to cut jobs or close stores. Most of the $300 million in annual savings expected by 2018 would come from procurement and distribution, he told Reuters.

"(Family Dollar) can produce more sales per square foot in their stores than they're currently producing," said Sasser. "That can be done through expanding the better categories and contracting the lesser categories."

Family Dollar had about 34,000 full-time employees and about 24,000 part-time employees, as of Aug. 31. Dollar Tree had about 17,600 full-time and 69,800 part-time employees as of Feb. 1.

Dollar Tree offered $59.60 in cash and the rest in stock for each Family Dollar share, in a deal with an enterprise value of about $9.2 billion.

Dollar Tree said it had secured bridge financing from JP Morgan Chase Bank that, along with existing cash and bonds, would be used to finance the deal.

J.P. Morgan Securities LLC is financial adviser to Dollar Tree. Morgan Stanley & Co LLC is advising Family Dollar.

by on Jul. 29, 2014 at 1:03 AM
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Replies (1-8):
Ms.KitKat
by Silver Member on Jul. 29, 2014 at 9:40 AM

meh- I really dislike the $1 stores. First- very few items are truly One Dollar. For another, those items are not even worth $1 and can be had cheaper at your local grocery store.

Lastly- the items by and large are all from China and God only knows what kind of shit they put in their- well- shit.

romalove
by SenseandSensibility on Jul. 29, 2014 at 10:27 AM
I love my local Dollar Tree. I get headbands for the business there, cotton rounds, flip flops....

Quoting Ms.KitKat:

meh- I really dislike the $1 stores. First- very few items are truly One Dollar. For another, those items are not even worth $1 and can be had cheaper at your local grocery store.

Lastly- the items by and large are all from China and God only knows what kind of shit they put in their- well- shit.

Ms.KitKat
by Silver Member on Jul. 29, 2014 at 10:40 AM
1 mom liked this

I don't have any by me- just the little mom-pop ones. Once when my kids were little, I went in to get them a balloon- their reward for sitting still for their haircut. That nasty old woman refused and said she was too busy to blow up any more balloons. Her store eventualy closed- karma.

There is a Family Dollar on 22 but I'm either going or coming from work. I used to buy those foil pans at the $1 store- now I find shop-rite is much cheaper. I can get 10 for $2.99-perfect for baked ziti with a crowd.

Quoting romalove: I love my local Dollar Tree. I get headbands for the business there, cotton rounds, flip flops....
Quoting Ms.KitKat:

meh- I really dislike the $1 stores. First- very few items are truly One Dollar. For another, those items are not even worth $1 and can be had cheaper at your local grocery store.

Lastly- the items by and large are all from China and God only knows what kind of shit they put in their- well- shit.


amygirl411
by New Member on Jul. 29, 2014 at 1:50 PM

I worked at a Dollar General in central Illinois for just over 2.5 months. When I went back home, instead of a Family Dollar, there was a Dollar Tree. TBTH, I'm not sure the difference between the two (FD & DT), regardless, they had food and other items I'd prefer to buy and use rather than the same type of product from Wal-Mart and Target. I'd even get the birthday cards, anniversary cards, holiday cards, sympathy cards, congrats crds, etc, from the DT instead of Target or even Wal-Mart, NOT due to the cost difference, but because I found the cards to be more meaningful and heartfelt to what I wanted to say to the recipient. Pens, home cleaning supplies, deodorant, even baby wipes are cheaper there and JUST as useable! The management at DT used to be horrid tho, when I worked there just over a month when I first moved back to my hometown, my schedule with my main job wasn't respected and I was fired for a stupid readson, and later found out that she (main manager) was fired less than a year after she fired me due to her poor decision making. Guess it all depends on perferences and such. Maybe something good will come of this?

erika9009
by Silver Member on Jul. 29, 2014 at 1:54 PM

This is normal business around the world

Why is this even news here?

redheadstar
by Bronze Member on Jul. 29, 2014 at 4:01 PM

Cool , I love Dollar Tree

SallyMJ
by Ruby Member on Jul. 29, 2014 at 6:32 PM

At least the Dollar family are staying together.

LeilaBeansMom
by Member on Jul. 29, 2014 at 7:30 PM
Hmmmmm...we have a Family Dollar. VERY little in there is under $5. It does pretty good business here though. The closest Walmart is a half hour away and our little grocery store is OUTRAGEOUS for prices. ($6.59 for a package of hotdogs, for pug's sake!!) I wonder if the prices will go a little lower now.
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