Must-know: Carl Icahn cuts down stake in Family Dollar stores

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Must-know: Carl Icahn cuts down stake in Family Dollar stores PART 1 OF 5

Why Carl Icahn trims stake in Family Dollar stores

Carl Icahn trims stake in Family Dollar stores

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 takeover deal from rival Dollar Tree Inc. (DLTR) for $8.5 billion. Icahn, who disclosed an activist position in June, had urged the company’s board and management to pursue “operating initiatives or explore strategic alternatives.”

Why Carl Icahn trims stake in Family Dollar stores

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Charlotte, North Carolina-based Family Dollar operates a chain of more than 8,200 general merchandise retail discount stores in 46 states, providing value-conscious consumers with a selection of competitively priced merchandise in convenient neighborhood stores. The company’s annual revenues were over $10 billion. Chesapeake, Virginia-based Dollar Tree is the third largest dollar store chain in the U.S. It operates 5,080 stores in 48 states and five Canadian provinces with annual revenues of nearly $8 billion.

According to a filing with the U.S Securities and Exchange Commission (or SEC), the Carl Icahn and his affiliate funds own 4,115,545 shares, representing a 3.61% stake in Family Dollar stores—down from the 9.39% stake disclosed in June. The filings revealed that the shares were sold at a price range of $75.15–$75.95 per share. He said in a statement on the merger that “Over the period since we began purchasing the stock, the common shareholders of Family Dollar have enjoyed an aggregate gain in market value of almost $1.9 billion, an increase of over 28.5%.”

Icahn said in the filing that the fund was “determined to dispose of a portion of the shares after concluding that better returns can be achieved by deploying capital elsewhere rather than waiting either for the Dollar Tree transaction to close or for the possibility of a higher offer to emerge.” The fund further said it intends “to continue studying the situation and may determine to dispose of or acquire additional shares in the future, depending on their views as to the probability of a higher bid, market conditions and other factors.”

News reports citing analysts in June believed that Family Dollar’s merger with its larger peer Dollar General (DG) would lead to cost synergies and enable the dollar store chains to effectively compete against big-box retailers such as Walmart (WMT), Costco (or COST), and Target (TGT).

Icahn’s 13D filing on FDO back in June noted that the Family Dollar’s “situation is analogous to that recently faced by companies such as CVR Energy, Forest Laboratories, Chesapeake Energy, and Biogen as well as a number of other companies over the last two decades, where the hedge fund’s involvement helped to generate tremendous returns for all shareholders.” Another activist investor Nelson Peltz’s Trian Fund Management is one of Family Dollar’s largest shareholders, with a stake of about 7.4%. In 2011, Peltz had made a bid for the company after accumulating a 7.9% stake, but the attempt was unsuccessful and Peltz withdrew when Family Dollar agreed to name his partner to its board.

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).


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