Family Dollar and Dollar Tree merger transaction details
Activist investor Carl Icahn’s hedge fund Icahn Capital trimmed its stake in Family Dollar (FDO) stores last week after the deep-discount retailer agreed to a $8.5 billion merger with rival Dollar Tree (DLTR). In this part of the series, we ‘ll discuss the details of the transaction, which is valued at $74.50 per share—a 22.8% premium over the Family Dollar’s closing price on July 25, 2014.
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Details of the Family Dollar store and Dollar Tree merger transaction
At closing, Family Dollar shareholders will own no less than 12.7% and no more than 15.1% of the outstanding common stock of Dollar Tree. Chairman and CEO of Family Dollar Howard R. Levine and Trian Fund Management, L.P. and funds managed by it, which collectively own ~16% of the outstanding stock of Family Dollar, have entered into voting agreements in support of the merger. The release further added that Levine will remain with Family Dollar and report directly to Dollar Tree CEO Bob Sasser.
After the deal is completed, Levine will become a member of the Dollar Tree Board of Directors. Sasser said the deal is “transformational,” adding that “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.”
Discount retailers such as Dollar General (DG), Family Dollar (FDO), and Dollar Tree (DLTR) are facing competition from big-box retailers such as Walmart (WMT) and Target (TGT), who are expanding with small-format stores as shoppers increasingly look for convenience. Both Walmart and Target are struggling with competition from discount retailers drugstores like CVS and Walgreens, and e-commerce giants such as Amazon (or AMZN). Family Dollar and its peers Dollar General and Dollar Tree are members of the State Street SPDR S&P Retail ETF (or XRT) and the SPDR Consumer Discretionary Select Sector Fund (or XLY).