Bargain retailer Dollar Tree Inc. is buying rival Family Dollar Stores Inc. for $8.5 billion in cash and stock in a bid to create one of the largest discount retailers in North America, the companies announced Monday.
Chesapeake, Va.-based Dollar Tree has agreed to pay $74.50 per share for Family Dollar Stores, based in Matthews, N.C., a premium of 22.8 percent over the closing price on Friday. The boards of directors of both companies unanimously approved the deal, which is expected to close in early 2015.
Family Dollar shareholders would get $59.60 in cash and $14.90 in Dollar Tree stock per share, according to the acquiring company. The transaction is subject to regulatory and Family Dollar shareholder approvals. Including debt and additional costs, the companies said the enterprise value exceeds $9.2 billion.
The combined company would operate more than 13,000 stores in 48 states and five Canadian provinces with projected annual sales exceeding $18 billion, and employ more than 145,000 workers. Stores would be operated under the Dollar Tree, Deals and Dollar Tree Canada brands, as well as under the Family Dollar Store name.
Dollar Tree stores target middle-income consumers and specialize in items that sell for a $1 or less in stores generally located in suburban areas. Family Dollar Stores sell a wider array of products at multiple price points, mainly to lower-income consumers in urban and rural areas, according to the companies.
The combination would make Dollar Tree a formidable challenger to the current leading dollar-store chain, Dollar General Corp., which has more than 11,300 stores in the United States, according to the Associated Press.
The entire category has come under postrecession pressure in the competition for lower-income and bargain-hunting consumers, analysts say. Family Dollar Stores cut prices and closed stores last year, and in June investor Carl Icahn, who owns more than a 9 percent stake in the company, urged it to seek a buyer, according to The New York Times. Howard Levine and Trian Fund Management and its funds together own 16 percent of outstanding stock of Family Dollar and entered into voting agreements supporting the acquisition.
Wachtell, Lipton, Rosen & Katz and Williams Mullen advised Dollar Tree; Cleary Gottlieb Steen & Hamilton advised Family Dollar; and Sullivan & Cromwell counseled Morgan & Stanley as the financial adviser to Family Dollar Stores.
William Old Jr. is chief legal officer and corporate secretary of Dollar Tree, according to its website. James Snyder Jr. is senior vice president, general counsel and secretary of Family Dollar Stores, a company founded in 1959 by the current CEO’s father that went public in the early 1970’s.
“This is a transformational opportunity,” said Bob Sasser, Dollar Tree’s chief executive officer in a news release. “This acquisition will extend our reach to lower-income customers and strengthen and diversify our store footprint,” he added. Sasser said the company also would save $300 million annually on sourcing, distribution and logistics by the end of the third year postclosing and be able to offer consumers in both chains a wider variety of merchandise.
Howard Levine, chairman and CEO of Family Dollar, said in the same release: “Today’s announcement represents the successful culmination of a comprehensive strategic review process that our board of directors, working with its financial and legal advisors, began this past winter.”
Levine would report to Strasser as CEO of Family Dollar and become a member of the Dollar Tree board of directors after the deal closes
Corporate partners Daniel Neff and Trevor Norwitz led Wachtell’s legal team for Dollar Tree. Antitrust partner David Schwartz also participated. Executive compensation and benefits partner David Kahan contributed, along with restructuring partner Eric Rosof. Tax partner T. Eiko Stange also advised in the matter. Ademola Adewale-Sadik, Robert Borek, Neil Chatani, Minsun Lee, Brandon Price, Michael Sabbah, Michael Schobel, Saish Setty and Yuni Yan Sobel assisted as associates.
The Williams Mullen team, also for Dollar Tree, comprised business and corporate partners Will Hulcher and John Mitchell, as well as associate Raj Singh.
The legal team for the Family Dollar Stores at Cleary Gottlieb was led by partner Ethan Klingsberg. The team included employee benefits counsel Mary Alcock, antitrust partner Brian Byrne, securities partner Nick Grabar, financing partner Amy Shapiro and mergers and acquisitions partner Paul Tiger. The associates included Phil Coffman, Thomas Larkin, Farrell Malone and Aaron Meyers.
Cleary Gottlieb has worked with the Family Dollar board of directors since the beginning of 2010 on shareholder activism and raid defense preparedness, Klingsberg said. The law firm worked with the board that year when Trian Group, a hedge fund headed by New York billionaire Nelson Peltz, filed an SEC notice criticizing management, a shot across the bow announcing that the company was potentially in play. Then, in 2011, Trian Partners made a proposal to take over the company at $55-$60 per share. In response, Cleary Gottlieb advised the Family Dollar board to adopt its first shareholders rights plan, otherwise known as a “poison pill,” and it rejected Trian’s hostile takeover proposal. Later, in September 2011, Cleary Gottlieb helped Family Dollar reach a settlement with Trian that resulted in one of Trian’s founding partners being integrated into its board of directors.
In 2012 Pershing Square Capital Management hedge fund announced that it had become a large shareholder in the company, and urged Family Dollar to sell itself to the highest bidder, but Cleary Gottlieb helped Family Dollar renew its shareholder rights plan for another year. Later the same year, Pershing said they were no longer shareholders, and Family Dollar terminated its shareholder plan. In the summer 2013, Trian’s standstill agreement expired. Starting last winter, the Family Dollar board began looking for a merger partner.
“It’s a very happy ending,” Klingsberg said in an interview, singling out Family Dollar general counsel Jim Snyder for special praise.
“He is a behind-the-scenes hero,” he said of Snyder.
Sullivan & Cromwell’s team for Morgan Stanley as financial adviser to Family Dollar Stores comprised corporate partners Francis Aquila and Melissa Sawyer and associate Yilei He.