Family Dollar Shareholders Approve Dollar Tree Deal

January 22, 2015

After months of delay and a failed bid by Dollar General, Family Dololar shareholders agreed to be acquired by Dollar Tree in a deal that creates a combined company with more than 14,000 locations, estimated annual sales of $19 billion and compelling growth opportunities.

Approval of the deal creates a new competitive dynamic in the world of extreme value retailing with the combination of Dollar Tree and Family Dollar making for a more formidable competitor to Dollar General and its nearly 12,000 stores.

Family Dollar operated 8,101 stores, which averaged about 7,200 square feet and were supported by 11 distribution centers at the end of the company's first quarter on November 29, 2014.  More than three-fourths of the company's sales are derived from food and consumable categories.  By comparison, Dollar Tree operated 5,077 stores, including 205 locations in Canada, which averaged about 9,000 square feet and were supported by 10 distribution centers at the end of the company's third quarter on November 1, 2014.  About half of Dollar Tree's sales come from food and consumable categories and the company also operates a format called "Deal$," where it sells merchandise for more than $1.

The deal is expected to close in March.  About 74% of the shares were voted in favor of the deal.

"Today's vote of approval by Family Dollar shareholders represents a crucial step toward combining Dollar Tree, North America's leading fixed price point discount retailer, with Family Dollar, a leading multi-price point retailer with a 50 plus year history of serving low and middle income customers," said Bob Sasser, Dollar Tree's CEO.  "By adding Family Dollar to our portfolio of brands, Dollar Tree will soon operate more than 13,000 stores in 48 states and five Canadian provinces with annual sales exceeding $18 billion.  This merger enhances our geographic footprint and diversifies our business model.  We intend to operate and grow both banners."

Family Dollar chairman and CEO Howard Levine said he was pleased with the outcome of the vote.

"The Family Dollar Board of Directors and management team have worked diligently to advance the best interests of all of the company's stockholders, and we are grateful for the support we received for the merger proposal," Levine said.  "We are also very appreciative of Family Dollar's talented and committed team members, who have remained focused on serving our customers throughout this process.  We look forward to completing the transaction with Dollar Tree and remain excited about the opportunity that this combination will create for our stockholders, team members, customers and other stakeholders."

Dollar General emerged as a bidder for Family Dollar after Family Dollar and Dollar Tree announced their acquisition deal on July 27, 2014.  Dollar General's all-cash offer for $80 a share appeared superior on the surface to Dollar Tree's cash and stock offer valued at $76.85 a share, but concerns quickly emerged about the number of store divestitures that would be required to secure regulatory approval because of the extensive overlap between the Dollar General and Family Dollar footprint.  Family Dollar indicated that between 3,500 and 4,000 stores were "problematic" based on Federal Trade Commission feedback while Dollar General indicated regulatory approval could be secured with the divestiture of no more than 1,500 stores.

In the end, Family Dollar shareholders voted for the certainty of the tie-up with Dollar Tree over the richer but potentially problematic offer from Dollar General.

Source: Retailing Today 

Feuding Continues In The Family Dollar Affair

December 5, 2014

As the acquisition of Family Dollar Moves closer to resolution, would-be acquirers Dollar Tree and Dollar General maintain widely differing views on the superiority of their respective offers and the opinion of federal regulators.

The latest developments in the ongoing Family Dollar affair occurred December 5 when Dollar Tree and Dollar General took shots at each other in sharply worded press releases that offered differing views on competition, competitive overlap and store divestiture scenarios.  Both companies said they have been actively involved in conversations with the Federal Trade Commission as a December 23 vote on the deal with Dollar Tree looms for Family Dollar shareholders.

"We believe that the FTC staff appreciates that Dollar Tree and Family Dollar are different retailers with complementary business models," according to a statement by Dollar Tree indicating a small number of stores would need to be divested to secure regulatory approval.  Conversely, Dollar Tree contends the FTC may require Dollar General to divest far in excess of the 1,500 stores Dollar General offered to divest in its tender offer for Family Dollar.

"Dollar Tree stores sell everything for $1 or less.  Our product mix is constantly changing and includes a balance of things the consumer needs and things the consumer wants such as seasonal items, party goods, and other discretionary products," Dollar Tree said in a statement.  "Our shopping experience is fun, fast, and friendly with surprising products engendering a thrill of the hunt atmosphere.  Family Dollar sells primarily branded consumable products at multiple price points up to $20 or more.  Their customers expect Family Dollar to carry the same assortment of products week in and week out."

Based on the view that Dollar Tree and Family Dollar are distinct competitors and therefore only a small number of divestures would be required, according to Dollar Tree, which said it would be in a position to complete the deal by February 2015.

Not so fast was the response from Dollar General shortly after Dollar Tree issued its statement.  Dollar General looks past its similarities with the Family Dollar business model to assert its chief rival is Walmart.

"Dollar General's documents and data tell a very different story from that contained in the press release issued today by Dollar Tree," the company said.  "Walmart, not Family Dollar, is the primary driver regarding Dollar General's strategic pricing decisions, and more than 90% of Dollar General's SKUs are nationally priced.  Dollar General is confident that its approach to strategic and pricing decisions is both correct and superior to that of Family Dollar and Dollar General has no intention of adopting a flawed strategy - either now or after an acquisition of Family Dollar - that it believes would impair its ability to compete with Walmart and lead to inferior financial performance."

The coming weeks promise even more drama in the merger saga.  Dollar General said it will continue to work with the FTC and expects to provide an update in sufficient time to allow Family Dollar shareholders to review information prior to the meeting scheduled for December 23.

Meanwhile, Dollar Tree continues to portray its rival's offer as a risky and uncertain proposal due to overlap issues.  As a result, Dollar General may spend many months advocating and negotiating with the FTC with significant uncertainty as to the outcome and its bid may ultimately fail because the scope of an unprecedented FTC-required divestiture would lead to an unacceptable loss of value, according to Dollar Tree.

Source: Retailing Today 

Dollar General Reveals 2015 Growth Strategy As Q4 Comps To Grow 5%

December 4, 2014

Even if Dollar General is unsuccessful in acquiring Family Dollar, the company plans to get bigger faster in 2015 by opening two stores every day and enhancing the productivity of an already expansive footprint.

Dollar General said Thursday it will open 730 new stores in 2015 and enter new states such as Maine, Rhode Island and Oregon.  Combined with the remodel or relocation of another 875 stores, the investment in physical stores will see Dollar General expand selling space by 6 percent on top of its existing store base of 11,715 locations.  The 2015 growth targets compare to this year's expansion program which will see the company open roughly 700 stores and relocate or remodel another 900 locations by the time its fiscal year ends in January.

The update on growth was made in conjunction with the release of solid third quarter results in which the company tempered fourth quarter profits expectations and reaffirmed its commitment to acquiring Family Dollar, a company which has already reached a merger agreement with Dollar Tree.

"Our affordability-focused initiatives continued to gain traction with our customers in the third quarter, and our same-store sales growth of 2.8 percent reflected increases in both customer traffic and average ticket for the 27th consecutive quarter," said Rick Dreiling, Dollar General's chairman and CEO.  "We continued to grow our market share in consumables, and we are very pleased with the performance of our home and apparel categories.  Importantly, we are seeing a significant step up as we start the holiday season, and we expect to achieve same-store sales growth of approximately 5 percent for the fourth quarter."

The top line sales growth is expected to help the company achieve the middle of a previously provided full year profits forecast which calls for earnings per share of $3.45 to $3.55.

"We have continued confidence that we are well-positioned for sustainable growth and creation of shareholder value," Dreiling said.  "Finally, we remain committed to acquiring Family Dollar.  We expect to provide an update on our offer in time for Family Dollar shareholders to review such information prior to the Family Dollar shareholders' meeting scheduled for December 23, 2014."

Source: Retailing Today

Voting Extended In Family Dollar Deal

October 31, 2014

Dollar General has extended the deadline for Family Dollar shareholders to approve a buyout while it continues to recommend a "no" vote on a competing proposal from Dollar Tree.

Dollar General said it extended its tender offer to acquire all outstanding shares of Family Dollar for $80.00 to December 31 from October 31.  Meanwhile, Family Dollar is scheduled to hold a special meeting on December 11 to vote on a merger with Dollar Tree that offers less generous compensation than Dollar General's bid, but is viewed as offering shareholders a higher degree of certainty concerning regulatory approval.  Dollar General has disputed that assertion and both it and Family Dollar have presented their respective experts to offer opinions on the merits of a Dollar General versus Dollar Tree acquisition.

Dollar General wants Family Dollar shareholders to vote against the Dollar Tree merger to send a clear message to the Family Dollar board to engage in discussions with Dollar General.  The company said a vote against the merger agreement with Dollar Tree would not obligate Family Dollar shareholders to tender their shares in the Dollar General tender offer.

Dollar General said it remains committed to the proposed acquisition of Family Dollar and will continue to cooperate with the Federal Trade Commission to obtain antitrust regulatory clearance for the transaction.

Source: Retailing Today

Family Dollar Closing In On FTC Compliance

October 22, 2014

Family Dollar Stores on Tuesday announced that it has certified substantial compliance with both the Federal Trade Commission's second request regarding the acquisition by Dollar Tree, as well as the second request regarding Dollar General's bid for the company.

Dollar Tree is expected to certify substantial compliance by November 7, the company stated, however Family Dollar has no insight as to when Dollar General will comply with the FTC's second request.  Family Dollar continues to believe, based on its discussions with the FTC staff, that the FTC review of the Dollar General tender offer will continue well into 2015, the company stated.

Once all parties have certified that they have substantially complied with FTC's second request, the Commission has 30 additional days to complete its review of the transaction and to take action if necessary.

Family Dollar is committed to cooperating with the FTC's investigations of both transactions, and providing all of the necessary information from Family Dollar for the FTC to advance its review of both potential transactions as promplty as practicable.

Source: Retailing Today

Decreased Customer Traffic Affects Family Dollar's Q4

October 9, 2014

Family Dollar's fourth quarter results were affected by decreased customer traffic, prompting chairman and CEO Howard R. Levine to point out that the company is still in the early stages of its turnaround plan.

Levine expects that the strategic actions taken in fiscal 2014 will position the company for better sales and earnings performance in fiscal 2015.  Although he anticipates that the first quarter will be the most challenging of fiscal 2015, Levine is optimistic that momentum will build through the rest of the year.  But he stopped short of giving specific details regarding financial guidance for 2015 in light of the company's pending merger with Dollar Tree.

Total net sales for the quarter increased 4.5% to $2.61 billion from $2.5 billion in the prior-year quarter.  Comparable store sales increased 0.3% as a result of an increase in the average customer transaction value, partially offset by fewer customer transactions.  Sales in the fourth quarter of fiscal 2014 were strongest in the consumables and seasonal and electronics categories.

Gross profit for the quarter was $861.3 million or 32.9% of net sales.  During the quarter, the company implemented a series of restructuring initiatives, including the closing of 375 underperforming stores.  As a result, the company incurred $10.4 million in inventory write-downs in an effort to sell through merchandise at stores scheduled to close.

Net income in the quarter was $34.5 million compared with $102.2 million in the fourth quarter last year.  Adjusted to exclued the inventory write-downs, restructuring charges and merger fees in the quarter, and the favorable accounting adjustment in the quarter, net income for the quarter was $83.9 million, compared to adjusted net income of $99 million in the fourth quarter last year.

"Although our fourth quarter results continue to reflect the difficult competitive environment, as well as the financial challenges facing our customers, we are continuing to execute our previously announced restructuring initiatives to improve our performance," added Levine.

Source: Retailing Today

Dollar General Appeals Directly To Rival's Shareholders

September 10, 2014

Since Family Dollar's board of directors unanimously rejected Dollar General's second and sweetened tender offer from September 2, Dollar General has decided to make the tender offer directly to the company's shareholders.

The company's all-cash offer of $80 per share beats Dollar Tree's offer of $74.50 per share cash/stock offer originally made July 28.  The Family Dollar board has rejected both Dollar General's offers on the basis of antitrust regulatory considerations.

But Dollar General is appealing to Family Dollar's shareholders with approximately $640 million of additional aggregate value over Dollar Tree's offer - a premium of 31.9% over the closing price of $60.66 for Family Dollar stock on the day prior to the Dollar Tree announcement.

As part of a definitive merger agreement with Family Dollar, Dollar General would be willing to agree to divest up to 1,500 stores if required by the FTC and to pay Family Dollar a $500 million reverse breakup fee if the transaction does not close for reasons related to antitrust approvals.

The offer is not conditioned upon any financing arrangements, according to Dollar General, which added that it has received written financing commitments that are in full force and effect from Goldman, Sachs & Co. and Citigroup Global Markets for all the financing necessary to consummate the proposed all-cash transaction.

"Our offer provides Family Dollar shareholders with significantly greater value than the existing agreement with Dollar Tree, as well as immediate and certain liquidity for their shares," said Rick Dreiling, chairman and CEO of Dollar General.  "By taking this step, we are providing all Family Dollar shareholders a voice in this process, and we urge them to tender into our offer.  Additionally, we now can begin the antitrust review process and will have an opportunity to present our position directly to the FTC.  As we previously have stated, we are confident in the results of our antitrust analysis, and we look forward to a constructive dialogue with the FTC."

Meanwhile, the Family Dollar board has confirmed that it will review and consider Dollar General's latest move in accordance with applicable law, and advise shareholders of its position regarding the tender offer by making available to shareholders, and filing with the Securities and Exchange Commission, a solicitation/recommendation statement on Schedule 14D-9.

"Applicable securities laws prevent Family Dollar from making any further comments on Dollar General's tender offer or its terms until after this filing is made on Schedule 14D-9 which will be no later than September 23, 2014.  Until that time, Family Dollar shareholders are advised to take no action," the board said in a statement, adding only that it has not changed its recommendation in support of the merger with Dollar Tree."

Source: Retailing Today 

Dollar Tree To Divest As Many Stores As Required For Antitrust Approval

September 5, 2014

Dollar Tree and Family Dollar have amended their merger agreement to include a commitment by Dollar Tree to divest as many stores as necessary or advisable to obtain antitrust clearance for the previously announced cash and stock transaction.

All other terms and conditions of the merger agreement remain the same as announced on July 28, 2014.  The two companies also said that their expectations for a closing date for the transaction have accelerated to as early as the end of November 2014.

News of the amended merger agreement coincided with Family Dollar's rejection of Dollar General's revised proposal made on September 2 on the basis of antitrust regulatory considerations.

Dollar Tree and Family Dollar expect the Federal Trade Commission to issue a second request for additional information on September 8, and said they are confident that regulatory approval will be obtained.

"Dollar Tree is committed to working hard to complete our acquisition of Family Dollar as quickly as possible.  Our amended agreement is clearly superior to Dollar General's revised proposal based on antitrust risk, deal certainty and time value of money," said Bob Sasser, Dollar Tree's CEO.  "Unlike Dollar General, we expect to be required to divest few, if any, stores because our business model is significantly different from Family Dollar's model.  Our product assortment and pricing is not driven by local competition, and we have very limited store overlap.  As evidence of our confidence in and commitment to closing this transaction without delay, we are amending our merger agreement to provide for a commitment to divest as many stores as necessary to obtain antitrust clearance."

Under the terms of the agreement announced on July 28, Family Dollar shareholders will receive $59.60 in cash and $14.90 equivalent in Dollar Tree shares for each common share of Family Dollar owned, subject to a collar.  At closing, Family Dollar shareholders would own no less than 12.7% and no more than 15.1% of the outstanding common stock of Dollar Tree.

"Dollar Tree and Family Dollar continue to have productive discussions with the FTC," added Sasser, "and despite the anticipated second request from the FTC, we remain confident in our ability to complete our transaction with Family Dollar by as early as the end of November 2014 and deliver expeditiously the closing certainty and substantial value that this transaction provides to both companies' shareholders, customers and employees.  We will continue to work hard to complete our acquisition of Family Dollar as quickly as possible."

Source: Retailing Today 

Family Dollar Rejects Dollar General Merger Proposal

September 5, 2014

Family Dollar has rejected the revised proposal made by Dollar General on September 2 on the basis of antitrust regulatory considerations.  The Dollar General offer may be financially superior, the dollar store noted, but it's not likely to pass muster with the Federal Trade Commission.

"Our board of directors, with the assistance of outside advisors and consultants, reviewed all aspects of Dollar General's revised proposal and unanimously concluded that it is not reasonably likely to be completed on the terms proposed," stated Howard Levine, chairman and CEO of Family Dollar.  "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.  Accordingly, our board has rejected Dollar General's revised proposal and reaffirmed its support of the transaction with Dollar Tree, which delivers attractive value in the form of immediate upfront cash and upside participation in a combined Dollar Tree - Family Dollar entity, as well as closing certainty."

"We are focused on delivering to Family Dollar shareholders the highest value with certainty, and the Dollar Tree transaction does just that.  Dollar Tree has taken the antitrust risk off the table by committing to divest as many stores as necessary to obtain antitrust clearance.  We remain fully committed to the Dollar Tree transaction," added Ed Garen, a Family Dollar director and co-founder and chief investment officer at Trian Fund Management.  "Dollar General's revised proposal, on the other hand, does not eliminate regulatory risk for Family Dollar shareholders.  Dollar General has repeatedly stated that antitrust is not a risk, yet they have put forth proposals that require Family Dollar shareholders to bear the ultimate risk.  Receiving a reverse breakup fee with an after-tax value of less than $3 a share does virtually nothing to compensate the Family Dollar shareholders for assuming that risk."

Family Dollar's merger agreement with Dollar Tree contains a customary provision that permits Family Dollar to enter into discussions and share information with any competing bidder, but only if the board is able to determine that failure to do so would be inconsistent with its fiduciary duties and that the unsolicited, written proposal from the competing bidder would be reasonably expected to lead to a proposal that is not only financially superior, but also "reasonably likely to be completed on the terms proposed."

Family Dollar contends that the FTC would take a more critical review of any proposed Dollar General/Family Dollar merger.

The Family Dollar Board's unanimous determination to reject Dollar General's revised proposal and to accept Dollar Tree's commitment to divest as many stores as required for antitrust approval follows the unanimous recommendation of a committee of four non-management independent directors that has been overseeing the company's consideration and exploration of strategic alternatives since January 2014.  This committee consists of Glenn Eisenberg, Ed Garden, George Mahoney, Jr. and Harvey Morgan.

Source: Retailing Today 

An Offer Family Dollar Can't Refuse

September 2, 2014

The Family Dollar board is under new pressure to walk away from a deal with Dollar Tree after Dollar General further increased an already more generous counter offer.

Early Monday Dollar General increased its all cash offer to $80 a share from $78.50 a share and increased the number of stores it said it would be willing to divest to 1,500 from 700.  The company also said it would be willing to pay Family Dollar a $500 million reverse break-up if the deal failed to secure antitrust clearance.

Family Dollar already has an acquisition in place with Dollar Tree for $74.50 a share, consisting of $59.60 in cash and $14.90 in Dollar Tree shares.  While Dollar General's initial proposal was richer and all cash, concerns surfaced that regulqtory approval could be an issue even though Dollar General indicated it would divest up to 700 locations.

"We are confident that our enhanced proposal sufficiently addresses any concerns that led Family Dollar's board of directors to reject our prior proposal without any discussions between our companies," said Rick Dreiling, Dollar General's chairman and CEO.  "Even as a secondary antitrust review supported our previous proposal, we revised our offer to demonstrate the seriousness of our commitment.  Our revised proposal provides Family Dollar shareholders with significantly increased value over the existing agreement with Dollar Tree, as well as immediate and certain liquidity for their shares.  If the Family Dollar board fails to seize this opportunity to maximize value for its shareholders, we will consider taking our superior proposal directly to the Family Dollar shareholders."

Dollar General believed its earlier 700 store divestiture commitment would have been sufficient to clear any review by the Federal Trade Commission and suggested those analyzing the deal on behalf of Family Dollar are using a flawed methodology.

"Perhaps Family Dollar's advisors are analyzing this transaction as if it were a potential grocery store merger or utilizing data that tells a story much different than Dollar General's documents and data," according to a Dollar General statement.  "Dollar General is confident that this matter would not be evaluated as traditional grocery store merger and that, as the acquirer, Dollar General's documents and data would be more important to the FTC in its analysis than those of Family Dollar."

Those documents indicate that Dollar General is more concerned about competition from Walmart than Family Dollar and it makes pricing decisions accordingly.

In a letter to the Family Dollar board, Dreiling expressed disappointment that the Dollar General's earlier bid was rejected without any conversations but said the company was committed to the deal.  The company took the added measure of engaging Richard Feinstein of Boies, Schiller & Flexner to independently review the company's earlier antitrust analysis.  Feinstein led the FTCS Bureau of Competition until 2013 and determined the deal can be completed on the company's initial terms.

"We look forward to the time when our companies and their advisors are able to disucss these matters more openly with one another once you have taken the appropriate steps under your existing merger agreement to allow that to happen," Dreiling said.  "Only by engaging with us can you ensure that you have fulfilled your duty to your shareholders to be well-informed and that you have acted in the best interests of your shareholders to maximize the value of their shares."

Source: Retailing Today 

Dollar General Reaffirms Commitment To Family Dollar

August 28, 2014

Dollar General made the case for the superiority of its Family Dollar takeover bid with the release of second quarter results that revealed consistency as well as some deceleration in sales and profit growth.

Sales at the company's more than 11,500 stores increased 7.5% to slightly more than $4.7 billion due to new store expansions and a same store sales increase of 2.1% driven by growth in customer traffic and average transaction size.  During the first half of the year, Dollar General opened 426 new stores and remodeled or relocated 585 others.  The second quarter was the 26th consecutive period in which traffic and transaction size metrics have increased, according to Dollar General chairman and CEO Rick Dreiling.

Meanwhile, profits increased 2.4% to $251 million, or 83 cents a share, in line with analysts' estimates, compared to prior year profits of $245 million, or 75 cents a share.

"Our second quarter same-store sales began very strong with a year over year increase in May of more than 3.5%, however, this growth moderated as we moved through June and July given the competitive environment and a consumer who, although resilient in the face of economic uncertainty, remains cautious with her spending," Dreiling said.

Sales of consumables continued to outpace sales of non-consumables with the company reporting the most significant growth in categories such as tobacco, perishables, candy and snacks.  The company said it also saw solid same-store sales growth was also reported in the home and apparel categories.  The competitive environment cited by Dreiling prompted Dollar General to increase promotional activities which caused gross margins to decline 53 basis points to 30.8%.  The other source of ongoing margin pressure is the fact that Dollar General continues to derive a larger percentage of its sales from lower margin consumable categories such as tobacco and perishables.

"As we enter the third quarter, we are seeing our sales momentum pick back up and expect that momentum to build as our initiatives gain traction with our customers," Dreiling said.  "For the second half of the year, we are well positioned to serve our customers and provide them with the everyday low pricing they count on from us."

Dollar General also believes it is well positioned to consummate one of the largest acquisitions the retail industry has seen in years.  The company hopes to prevail in its efforts to acquire rival Family Dollar which has already agreed to be acquired by Dollar Tree.  The deal has the potential to create a combined company with a massive nationwide footprint of roughly 20,000 locations.

"In regards to our proposal to acquire Family Dollar, we remain firmly committed to the acquisition," Dreiling said.  "The financial benefits of our offer to Family Dollar shareholders are indisputable, and the proposed combination would unlock tremendous value for Dollar General shareholders.  We continue to believe the potential antitrust issues are manageable and that our transaction as proposed is both superior and achievable."

Dollar General has offered to acquire Family Dollar for $78.50 a share in an all cash deal valued at $9.7 billion it contends could secure regulatory approval with the divesture of as many as 700 stores.  Its takeover offer came after the boards of Dollar Tree and Family Dollar had already approved a $74.50 per share deal valued at $8.5 billion that consisted of $59.60 per share in cash and $14.90 in Dollar Tree shares.

Source: Retailing Today 

Family Dollar Rejects Dollar General's Takeover Bid

August 21, 2014

Family Dollar Stores rejected a $9 billion, all-cash takeover offer from Dollar General, pointing to antitrust concerns and reaffirming its support for its deal with smaller rival Dollar Tree.

Family Dollar's agreement with Dollar Tree, reached late last month, is worth about $8.5 billion in cash and stock, or $74.50 a share.  Family Dollar shares fell slightly to $79.65 in recent remarket trading, still above Dollar General's offer of $78.50, indicating investors expect the fight to drag on.

"Our board reviewed, with our advisers, all aspects of Dollar General's proposal and unanimously concluded that it is not reasonably likely to be completed on the terms proposed," Chairman and Chief Executive Howard R. Levine said.  "Accordingly, our board rejects Dollar General's proposal and reaffirms its support for the pending merger with Dollar Tree."

A representative from Dollar General wasn't immediately available, while Dollar Tree declined to comment.

The battle over Family Dollar, the second-largest U.S. dollar chain, has come as so-called dollar stores have performed with relative strength compared to the rest of the retail sector, which has been consolidating as customer traffic declines and online competition grows.

Dollar General, the largest of the three dollar stores, had said it would divest 700 stores after a potential merger with Family Dollar to satisfy regulatory concerns.  A combination of Dollar General and Family Dollar would have about 20,000 stores in 46 states, with sales of more than $28 billion, Dollar General has said.

Dollar Tree is No. 3 in the market.

Investor Nelson Peltz's Train Fund Management LP also cited antitrust worries while it offered support for Family Dollar's deal with Dollar Tree.

"Given the significant antitrust issues involved with Dollar General's proposal, we will not jeopardize the Dollar Tree deal for a transaction with Dollar General that has a high likelihood of not closing due to antitrust considerations," Train co-founder and partner Ed Garden said in Family Dollar's release Thursday.  "We remain fully committed to the Dollar Tree transaction."

Combined, Train and Mr. Levine own 16% of Family Dollar's shares.  Train itself had attempted to buy Family Dollar with a $7.75 billion offer the retailer rejected in 2011.  The firm has had a representative on the retailer's board since 2001.

Source: The Wall Street Journal 

Dollar General Outbids Dollar Tree For Family Dollar

August 18, 2014

Dollar General bid $78.50 for Family Dollar this morning in a $9.7 billion deal that exceeds the $74.50 a share Dollar Tree offered for Family Dollar on July 28.

The deal would create a small format powerhouse with nearly 20,000 stores in 46 states and sales of more than $28 billion.

"For Family Dollar shareholders, our proposal is financially superior to the current transaction agreement with Dollar Tree and would provide Family Dollar shareholders with a substantial premium and immediate liquidity for their shares," said Rick Dreiling, Dollar General's chairman and CEO.  "We look forward to expeditiously entering into constructive discussions with Family Dollar in order to sign a definitive merger agreement that provides enhanced value to Family Dollar shareholders and enables Dollar General to realize the benefits of this combination."

The $78.50 per share Dollar General offers represents a 29.4% premium over the $60.66 closing price of Family Dollar shares the day before Dollar Tree made its offer.  The deal Dollar Tree offered Family Dollar is valued at about $8.5 billion and involves Family Dollar shareholders receiving $59.60 in cash and $14.90 in equivalent Dollar Tree shares.  The offer has already been unanimously approved by the boards of both companies.

To get the deal done, Dollar General said it had done significant economic and antitrust analysis and was prepared to commit to divesting as many as 700 stores.  The company also committed to paying the $305 million termination fee Family Dollar will owe Dollar Tree if the previously announced deal falls through.  In addition, Dollar General CEO Dreiling said he would remain in his current role to oversee integration of the companies after previously indicating he would retire in 2015.

Dollar General and Family Dollar operate complementary business - similar size stores with similar product assortments - which is expected to result in operational synergies and annual savings of between $550 and $600 million three years after the proposed merger is complete, according to Dollar General.

"Dollar General has developed extensive integration plans across work streams.  The expected synergies would be derived from sales growth driven by an improved merchandise offering and store presentation, purchasing and sourcing efficiencies, distribution and transportation optimization and administrative savings," according to the company.

Source: Retailing Today 

Dollar Tree To Acquire Family Dollar

July 28, 2014

Dollar Tree said it would acquire Family Dollar in a transformational cash and stock deal valued at $8.5 billion to create a company with more than 13,000 stores and annual sales of $18 billion.

The deal was unanimously approved by the boards of both companys and involves Dollar Tree paying Family Dollar shareholders $59.60 in cash and $14.90 in equivalent Dollar Tree shares.

"We will continue to operate under the Dollar Tree, Deals, and Dollar Tree Canada brands, and when this transaction is complete, we will operate under the Family Dollar brand as well," said Dollar Tree CEO Bob Sasser.  "Throughout our history, we have strived continuously to evolve and improve our business.  This acquisition, which enhances our footprint and diversifies our company, will enable us to build on that progression, and importantly, positions Dollar Tree for accelerated growth.  By offering both fixed-price and multi-price point formats and an even broader, more compelling merchandise assortment, we will be able to provide even greater value and choice to a wider array of customers."

Sasser said the deal would extend the company's reach to lower-income customers and strengthen and diversify its store footprint while also delivering significant synergies by leveraging best practices of the organizations.  Dollar Tree anticipates that the transaction will result in $300 million of annual run-rate synergies to be fully realized by the end of the third year after closing.

Plans call for Family Dollar CEO Howard Levine to remain with the combined company, reporting to Sasser, and serve as a member of the board.

"For more than 54 years, Family Dollar has provided value and convenience to customers.  Dollar Tree also has a rich history of providing great value to customers, and together, as one company, we can provide more customers with even greater value and convenience," Levine said.

The deal is a culmination of a process that began last winter and included discussions of potential combinations with other partners, Levine said.  The comprehensive review process ultimately determined the combination with Dollar Tree was in the best interest of shareholders.

"This combination will enable Family Dollar to accelerate efforts to improve the business and will benefit our dedicated team members who will now be part of a larger, more diverse organization," Levine said.  "I am excited about our future with Dollar Tree, and I look forward to working with the Dollar Tree team to complete the combination as quickly as possible to realize the compelling benefits for all our stakeholders."

Source: Retailing Today

Family Dollar Stays Positive Following Q3 Results

July 20, 2014

Just a month after activist investor Carl Icahn became Family Dollar's largest shareholder prompting concerns of a hostile takeover, the company reported its third straight quarterly decline in same-store sales.

Same-store sales for the third quarter ended May 31 decreased 1.8% because of fewer customer transactions, partially offset by an increase in the average customer transaction value.  Sales in the third quarter of fiscal 2014 were strongest in the consumables category, driven primarily by strong growth in refrigerated/frozen food and tobacco.

Meanwhile, net sales increased 3.3% to $2.66 billion from $2.57 billion in the prior-year quarter.

"We are executing our previously announced restructuring initiatives to improve our performance," said chairman and CEO Howard R. Levine.  "Our recent investment to permanently lower prices is resonating with customers; we are seeing savings from our workforce optimization efforts; and we are on track to close approximately 370 underperforming stores by the end of the fiscal year.  We remain confident that these steps will position the company to improve our financial performance and deliver higher long-term shareholder returns."

Levine said that the company's results reflected not only economic challenges facing its core customers but also an intense competitive environment.  But he's remaining positive because although same-store sales did drop for the quarter, they actually improved in all four merchandise categories compared to its second-quarter results - a sign of improving trends.

Gross profit for the quarter was $910.9 million or 34.3% of net sales.  During the quarter, the company implemented a series of restructuring initiatives, including plans to close approximately 370 underperforming stores across the chain by the end of fiscal 2014.  As a result, the company incurred a $1.5 million inventory write-down in an effort to sell through merchandise at stores scheduled to close.

Excluding the inventory write-down, adjusted third quarter gross profit increased 2.2% to $912.3 million, or 34.3% of net sales, compared to $892.5 million, or 34.7% of net sales, in the third quarter of fiscal 2013.  As a percentage of sales, the impact on gross profit of stronger sales of lower-margin consumables, lower markups and higher markdowns was partially offset by lower inventory shrinkage.

During the quarter, the company opened 111 new stores, closed 3 stores and renovated, relocated or expanded 266 stores.

As part of its ongoing business review, the company lowered prices on nearly 1,000 basic items, investing more than $50 million, on an annualized basis, to deliver more compelling values to customers.  It has also made plans to slow new store growth beginning in fiscal 2015.  The company now expects to open 350-400 new stores in fiscal 2015, down from approximately 525 new stores in fiscal 2014.

In an effort to drive more profitable growth, the company is also investing in longer-term initiatives, which include further expanding its cooler program beginning in fiscal 2015 and expanding traffic-driving categories with a multi-year rollout of beer and wine likewise beginning in fiscal 2015.

Looking ahead to the fourth quarter, the company expects that comparable store sales will be approximately flat and that earnings per diluted share will be between $0.75 and $0.85, excluding approximately $0.37 related to restructuring charges.  Including the restructuring charges, the company expects earnings per diluted share will be between $0.38 and $0.48.

Source: Retailing Today 

Family Dollar Makes Strategic Changes Following Disappointing Q2

April 10, 2014

Family Dollar plans to close 370 underperforming stores, cut jobs and lower prices on 1,000 basic items following a disappointing second quarter, which was adversely affected by the extra week in last year's quarter, severe weather, holiday promotions and a challenging consumer environment.

The company is also slowing its new store growth beginning in fiscal 2015 to bolster its return on investment.  It now anticipates opening 350 to 400 new stores as opposed to approximately 525 stores in 2014.

Net income in the quarter ended March 1 fell 35% to $90.9 million from $140.1 million in the year-ago period.  Net sales decreased 6.1% to $2.7 billion, from $2.9 billion.  Same-store sales declined 3.8% as a result of decreased customer transactions, partially offset by an increase in the average customer transaction value.

"Our second quarter results did not meet our expectations," said chairman and CEO Howard R. Levine.  "The 2013 holiday season was challenged by a more promotional competitive environment and a more financially constrained consumer.  In addition, like many retailers, our second quarter results were significantly impacted by severe weather, which resulted in numerous store closings, disrupted merchandise deliveries and higher than expected utility and store maintenance expenses."

The job cuts and store closures are expected to reduce annual operating costs by $40 million to $45 million beginning third quarter of fiscal 2014.

Looking ahead, the company expects to record an estimated $85 million to $95 million restructuring charge in the second half of fiscal 2014 related to the workforce reductions and store closures.

For the third quarter of fiscal 2014, Family Dollar expects that same-store sales will decline in the low single digit range and for the fourth quarter of fiscal 2014, the company expects that same-store sales will be flat to up slightly.  Family Dollar also expects a low single digit increase in net sales during the full fiscal year.

Source: Retailing Today

Food Assortment, Prices Lowered At Family Dollar

April 1, 2014

In a move to increase traffic and grow sales, Family Dollar said it added 400 products to its food offerings and reduced prices on 1,000 other items.

As part of the rollout, the operator of more than 8,100 stores enlisted the aid of television personality, author and chef Pat Neely.  Plans call for Neely to participate in several special events including a recipe contest in which the challenge is to prepare a meal for four for under $15.  The contest winner will receive a cooking experience with Neely at his home in Memphis.

"At Family Dollar, our focus is solely on our customer.  It's important for us to constantly evaluate our assortment, making sure that we have the products and national brands that are relevant to her and her family, always at a great everyday value," said Jason Reiser, Family Dollar's chief merchandising officer.  "I am excited to add these new food items to our already robust assortment, and I am confident that our customers will be impressed by the expanded selection we have to offer."

According to Neely, Family Dollar stores have everything shoppers need to make delicious dishes at everyday low prices whether the occasion is a quick weeknight meal, fun lunch or famly reunion.

"Pat brings a down-to-earth style and flair that resonates with Family Dollar and our customers," Reiser said.  "We are excited to welcome Pat to the Family Dollar family.  He's a great ambassador for us as we expand our food assortment."

Source: Retailing Today

Bloom Out At Family Dollar, Reiser Named CMO

January 9, 2014

The search is on for a new president and COO at Family Dollar following the resignation of Michael Bloom amid deteriorating financial results and a 3% same store sales decline in December.

Bloom, who recently donned a disguise to appear in an episode of the CBS show "Undercover Boss," spent two years as Family Dollar's president and COO and joined the company from CVS.  In conjunction with his departure, Family Dollar elevated Jason Reiser to the role of EVP and Chief Merchandising Officer and he will report directly to Family Dollar chairman and CEO Howard Levine.  Reiser joined Family Dollar in July 2013 as SVP of merchandising after a 17 year career with Sam's Club and by October of last year he had already been promoted to the role of SVP/Lead Merchandising Officer.

The senior leadership moves were announced in conjunction with dismal sales results for the company's first quarter ended November 30 and a 3% decline in December same store sales, which prompted the company to forecast further top line weakness and lower its profit forecast.  Family Dollar said sales for its first quarter, ended November 30, increased a meager 3.2% to $2.5 billion, due to the addition of new stores.  Same store sales declined 2.8% as fewer people shopped its stores and those who did spent less money.

Reversing those trends now falls to new head merchant Reiser who will have responsibility for the company's merchandising, global sourcing, marketing, replenishment and financial planning teams.

"Continuing to refine our assortment to meet the needs of our customer is critical to being a compelling place to shop," said Levine.  "Jason's proven leadership, merchandising experience and deep understanding of our customer position him well to ensure that we grow both customer trips and market share."

Improvement is not expected to be immediate, however, as Levine noted a challenged consumer and intensified promotional environment continue to affect the company's business.  That was the case in December when Levine said the company was forced to react to softness in discretionary categories by becoming more promotional.

"Reflecting our December results, our expectations that the macroeconomic trends will continue, and the impact of investments we plan to make to strenghten our value proposition, we have lowered our earnings expectations for the second quarter of fiscal 2014 and the full year," Levine said.  "While we have made meaningful progress to improve our execution, our financial performance has not met our expectations.  We have a great business model and ample growth opportunity, and I know we can do better."

The immediate focus for Family Dollar, according to Levine, is to execute the basics of reatil; re-accelerate customer traffic, strengthen the value proposition and enhance the relevancy of its assortment.

"We also intend to maintain our focus on reducing costs while also selectively investing in new stores, our renovation program and supply chain improvements to position our long-term growth," Levine said.

Source: Retailing Today

Family Dollar: A Different Kind Of Discount Store

There is a lot to like when it comes to the growth trajectory at Family Dollar and its record of consistency. The company just reported its 17th consecutive quarter of double-digit earnings per share growth, and the foundation is in place for more of the same.

Total sales increased 9.6% to nearly $2.4 billion, and same-store sales increased 5% during the third quarter ended May 26. Profits during the period increased 12.1% to $124.5 million, and earnings per share increased 16.5% to $1.06 compared with 91 cents the prior year. The company ended the quarter with 7,216 stores and is on track to end its fiscal year in late August with the addition of 450 to 500 new stores.

The knock on Family Dollar during the most recent quarter related to a decline in gross margins, but that appears to be a case of the company incurring some short-term pain in the name of long-term gain. As Family Dollar has expanded its assortment of food and consumables, its rate of profitability has come down.

Gross margins declined to 35.8% during the third quarter compared with 36.2% the prior year. Of course the bright side of increased sales of lower margin frequently purchased products is they do wonders for customer traffic. During the third quarter, Family Dollar’s same-store sales increase was attributable to more people shopping its stores and buying more stuff per visit.

Another knock on Family Dollar is that it is not Dollar General. The company’s larger rival operates roughly 3,000 more stores than Family Dollar and recently surpassed 10,000 units with the opening of its first stores and a new distribution center in California. The two companies target the same customer base with similarly sized stores offering a comparable product assortment, except Dollar General produces superior financial returns.

For example, while Family Dollar’s gross margin rate declined in the third quarter, it offset the drop by reducing its expenses, but did so at a slower pace. Expenses as a percent of sales sank to 27.4% in the third quarter compared with 27.7% the prior year. As a result, the company’s operating margin rate declined to 8.4% compared with 8.6% the prior year.

By comparison, Dollar General’s lower expense structure allows it to produce a superior operating margin even though its gross margin rate is lower than Family Dollar’s. Dollar General’s expenses as a percent of sale were 21.7%, its gross margin was 31.8%, and its operating margin was slightly more than 10% during the company’s most recent fiscal year.

Family Dollar chairman and CEO Howard Levine knows that to close the gap the company must increase the productivity of its selling space.

“Delivering stronger shareholder returns begins with increasing sales per square foot, and this quarter, we began to implement a number of initiatives to broaden our consumable assortment and satisfy more of our customers’ shopping trips,” Levine said last month.

Among the initiatives to which he is referring are the addition of even more food and consumables to more stores, new brands such as Pepsi and expanded health and beauty offerings, the addition of tobacco products and Red Box movie rental kiosks.

“As planned, most of these initiatives began late in the quarter and had little impact on our third-quarter sales results. We are on schedule, and I am very pleased with the progress our teams have made in such a short period of time,” Levine said. “As we complete most of these initiatives in the fourth quarter, we will have a fully competitive assortment and will be well-positioned to accelerate sales productivity further.”

Source: retailingtoday.com