Discount store Family Dollar (FDO) has finally put itself up for sale after much pressure from billionaire investor Carl Icahn (Trades, Portfolio), who recently acquired a 9.4% stake in the company. Icahn reportedly sent a letter to Family Dollar’s CEO demanding that the company offer itself for sale, which he believes would greatly improve the company’s performance and bring the company up to speed with other big name rivals. The billionaire investor went as far as to threatening to disperse his demands and recommendations to the company’s shareholders, and to make an attempt at pushing out the entire board of directors. Needless to say, Icahn firmly believed that Family Dollar’s management team was not up to the task of managing the organization’s operations. The discount chain obviously recognized problems within the business when it closed a large number of stores, and announced plans to close almost 400 more in the third and fourth quarter of 2014.
On July 28, Dollar Tree (DLTR) announced that it will be buying rival Family Dollar for a total of $9.2 billion (including debt). Icahn had originally suggested that Family Dollar be bought out by leader Dollar General, but shortly after stated that the recent announcement of the retirement of Dollar General’s CEO would cause disruptions in his plan of merging the two companies. The announced deal gives Dollar Tree over 13,000 stores in the 48 states and Canada, as well as more than $18 billion in sales. This pushes Dollar Tree above and beyond major rival Dollar General, which last year had $17.5 billion in sales and 11,338 current locations. There has also been much talk about the impact this merger will have on the giant Wal-Mart (WMT), which generally focuses on low-income consumers by offering more items for under $1.
According to the agreement, Dollar Tree will be paying $74.50 in cash and stock for Family Dollar. Shareholders are set to receive $59.60 in cash, as well as $14.90 in Dollar Tree stock per share. The company is said to continue operating both the Dollar Tree and Family Dollar stores.
But will this merger be good for consumers? Experts have said that in general, mergers made by companies in the same consumer retail business are generally poor for the consumer. By having more rivals in the same business, competition arises which ultimately drives prices down. The low prices previously seen by Dollar Tree may not be as low as they once were after there are fewer competitors.
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Disclosure: No current position held at the time of writing.
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