Dollar General enters bidding for Family Dollar
For Dollar General, the decision to enter the fray was clear because Family Dollar had been on its radar for a while. Dollar General chairman and CEO Rick Dreiling said during a conference call Monday that the company had expressed interest in combining with Family Dollar a number of times over the last few years.
While Dreiling did not say whether there had been any sticking points in working out an agreement in the past, he said Dollar General was surprised when Family Dollar announced its deal with Dollar Tree. Despite the shock, Dollar General remains undeterred in trying to work out a transaction.
"It's all water under the bridge. We're ready to move forward," Dreiling said.
One reason Dollar General is angling for Family Dollar is its customer base. Dreiling said that Family Dollar was strong in metropolitan areas, while Dollar General's strength lay in rural markets.
"Maybe we'll be able to learn something from each other," he said.
The two businesses also have similar pricing strategies, offering shoppers most products at $10 or less. At Dollar Tree, everything in its stores costs just a buck.
While Dollar General and Family Dollar have several complementary aspects of their businesses, a combination would also help eliminate some competition in the sector.
Dreiling said that even though retailers such as Wal-Mart Stores Inc. have been opening smaller-format stores to try to lure lower-income customers, Dollar General's business has been hurt worse when a Family Dollar store opens near one of its locations.
But that does not mean Walmart and other retailers such as Kroger Co. are not a competitive threat still. By bringing Family Dollar into the fold, Dollar General cannot only eliminate the rivalry, it can also bolster its muscle to help ward off bigger players.
A Dollar General-Family Dollar combination would create a chain with almost 20,000 stores in 46 states and sales of more than $28 billion.
Family Dollar has also come into play because of its business struggles. In June, investor Carl Icahn urged the company to put itself up for sale.
Dollar General Corp. said it would pay $78.50 per share in cash. That is 3 percent higher than Family Dollar Stores Inc.'s Friday closing price of $76.06. Dollar General put the deal's value at $9.7 billion.
Last month Dollar Tree Inc. made an $8.5 billion bid for Family Dollar. Including debt and other costs, the companies estimated the transaction to be worth approximately $9.2 billion.