Last week, Dollar Tree Stores (DLTR) made big news by announcing the potential purchase of Family Dollar Stores (FDO) for $8.5 billion. As I noted before the announcement, the sale of FDO was widely expected, but news of the purchase of FDO on July 28 by DLTR was somewhat of a surprise, because the speculation was that a large hedge fund or possibly Dollar General would be the purchaser.
On the news, FDO stock immediately skyrocketed from $60.66 to $74.25, before closing at $75.74. Dollar Tree, which closed the previous day at $54.22, soared $6 higher off the opening bell, only to sell off the rest of the day, to finish only 1.2% higher at $54.87.
According to the agreement, FDO shareholders will receive $74.50 for each share owned — a combination of $59.60 in cash and $14.90 in DLTR stock.
The next day, investor Carl Icahn cashed out a chunk of his investment in FDO, cutting his stake from 9.39% to 6.03%. He told the media that “better returns can be achieved by deploying capital elsewhere”. Icahn, who bought shares at an average price of $58.20 per share was said to be selling them for $75.50, a cool profit of nearly 30%.
Investors Bring the Lawsuits
That same day, a lawsuit against the FDO board of directors was filed by Harwood Feffer, LLP, stating:
“Our investigation concerns whether the Family Dollar board of directors is fulfilling its fiduciary duties, maximizing the value of the Company, disclosing all material benefits and costs, and obtaining full and fair consideration for Company shareholders.”
Two days later, a private investor, Shiva Stein, also filed a lawsuit against FDO in a Delaware court, claiming that the company failed to maximize potential shareholder value by not shopping around for the best deal possible. Other law firms have since jumped onto the bandwagon.
Apparently the 24.8% one-day boost in FDO stock price was not substantial enough. But come on, you have to shop around. Would you expect anything less from a dollar store?
Now this week comes word that Dollar General (DG) is mulling an offer that would challenge DLTR for the purchase of FDO.