Dollar General Acquires Family Dollar at $9.7 Billion

Dollar General entered the sweepstakes for Family Dollar acquisition on Monday.

The discount retailer subdued other bidders after providing a major bid for retailer Family Dollar, which is a counterpart and rival of Dollar General. The firm’s proposition outperformed Dollar Tree’s bid last month.

DG bid an approximated $9.7 billion ($78.50 per share) for the stores of Family Dollar, said the firm’s management. The discount trader proposed an equivalent of $14.90 in Dollar Tree’s shares for each preferred share under the rights of Family Dollar and $59.60 in cash for shareholders payment. The value of the transaction totaled at $74.50 for every share.

Joan Storms, Wedbush Securities retail analyst, declared the bidding eruption that came on Monday is likely the start of a major bidding contest for the acquirement of Family Dollar.

The shares of Family Dollar surged by 5% ($79.81 a share), which somehow hints another but a higher bid in the coming days. The 12-month target value of Family Dollar was raised by Standard & Poor’s Capital IQ at $80 for every share.

Storms stated that the merger between Family Dollar and Dollar General will be a good union. Both retailers are good performing firms, which are also dependent on consumable products sales and often trade goods under the value of $10. Dollar General, being the largest of three discount retailers, is a well known vendor of non-consumable products at $1. The offer of the markdown merchant is reasonable, and there are earnings accumulation and synergies that can follow from the arrangement, said the analyst.

Though Dollar General is declared the largest of the discount vendors, Family Dollar is still a good match for DG. Family Dollar still welcomes business operations improvement, which includes its profit margins and productivity of employees.

The bidding contest is not yet nearing its end now that Dollar Tree still has a shot against Dollar General’s bid. If it can better DG’s tender ($4 a share higher), Family Dollar’s name will still remain and Howard Levine, the CEO of Family Dollar, will be able to preserve his position.

Storms declared that both boards of the firms involved in the deal have signed off. However, Dollar Tree stays on the mix of the arrangement.

The chief executive officer of Dollar General, Rick Dreiling, released his statement saying that its proffer evidently outperformed Dollar Tree’s offer. He also emphasized that the shareholders of Family Dollar will benefit from their shares’ liquidity and substantial premium.

Until now, there is vagueness on whether Dollar Tree will pursue participating in the bidding contention or not. Dollar General’s CEO retirement plans have also been affected by the present bid, causing Dreiling to possibly remain seated until May 2016.