JANA Partners adds a large stake in Dollar General



Dollar General position for activist fund

In 3Q14, JANA Partners added a stake in Dollar General Corporation (DG). The position accounted for 2.55% of the fund’s total third-quarter portfolio.


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Dollar General overview

Dollar General operates more than 11,000 stores across the US, primarily in the southern, southwestern, midwestern, and eastern regions. The discount retailer offers a broad selection of merchandise:

  • food
  • paper
  • cleaning supplies
  • pet care items
  • tobacco products
  • seasonal goods
  • home decor
  • domestic ware
  • basic apparel

Dollar General extends Family Dollar tender offer

On August 18, 2014, Dollar General made a proposal to acquire Family Dollar (FDO) stores for $78.50 per share in cash. Dollar General said the merger would solidify its position as the largest small-box discount retailer in the US. The transaction valued Family Dollar at approximately $9.7 billion.

Family Dollar rejected Dollar General’s $8.9-billion offer on August 21, citing “antitrust issues.” The board of Family Dollar favored the $8.5-billion bid that Dollar Tree (DLTR) had made for the company previously. Family Dollar had announced Dollar Tree’s offer on July 28.

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Trying again, Dollar General increased its all-cash proposal for Family Dollar to $80 per share. In a statement, Dollar General said it would also raise the number of divested stores to 1,500 if the FTC (or Federal Trade Commission) were to require this. Plus, the company agreed to pay a $500-million reverse breakup fee to Family Dollar relating to antitrust matters. On September 5, this second offer was also rejected due to antitrust considerations.

On October 1, Dollar General announced that it had commenced a tender offer to acquire all outstanding shares of Family Dollar for $80 per share in cash. Dollar General recently extended the offer to December 31.

Elliott Management believes Dollar General’s offer is superior

In October, Paul Singer’s Elliott Advisors (UK) Ltd. disclosed a 4.9% stake in Family Dollar and said in a letter that Family Dollar should “provide Dollar General… with an even playing field in its continuing efforts to acquire the company at price levels that are clearly superior” to those being offered by Dollar Tree.

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Sales growth misses estimates due to competitive market

Dollar General posted a net income of $251 million ($0.83 per diluted share) in 2Q14, compared to a $245-million net income ($0.75 per diluted share) in 2Q13. Net sales missed estimates but were up 7.5% to $4.72 billion from $4.39 billion in 2Q13. Same-store sales grew 2.1% due to increases in both customer traffic and average transaction value.

The company said that consumables sales continued to rise more quickly than those for non-consumables. Most of the significant growth came from tobacco products, perishables, candy, and snacks. Same-store sales growth was robust in home products and apparel. New stores impacted the sales increase, but sales from closed stores partially offset this growth.

Ongoing initiatives to drive sales and gross profit margins

For its full year in 2014, Dollar General expects sales to grow 8% to 9% over the 2013 fiscal year and anticipates that same-store sales will increase from 3% to 3.5%. The company forecasts that its fiscal 2014 adjusted diluted EPS (or earnings per share) will be $3.45 to $3.55.

Dollar General opened 426 new stores during the first half of 2014 and plans to open 700 stores for the full year.

JANA’s other 3Q positions

Barry Rosenstein’s JANA Partners added new positions in Amgen Inc., Rackspace Hosting Inc., and Valeant Pharmaceuticals. Increased positions include eBay (EBAY), PetSmart Inc., and Hertz Global Holdings. JANA sold stakes in Mallinckrodt Pharmaceuticals and FMC Corporation (FMC) as well.

The next part of this series will highlight JANA’s new position in Amgen Inc. (AMGN).


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