Dollar Tree to Family Dollar: Enough Is Enough!

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Bob Sasser has had enough.

Dollar Tree NASDAQ:DLTR

The CEO of Dollar Tree, Inc. (DLTR) sent Howard Levine, Executive Chairman and CEO of Family Dollar Stores, Inc. (FDO), a letter late last week saying that after two previous delays, Family Dollar must hold its scheduled Jan. 22 shareholder vote on a possible FDO-DLTR merger.

Sasser is concerned that all of the uncertainty surrounding a possible FDO merger with either Dollar Tree or Dollar General Corp. (DG) is damaging Family Dollar’s business, and he also stated that Dollar Tree’s financing costs will rise thereafter. So, Sasser said he won’t agree to anymore postponements.

It’s Jan. 22 or never.

“After two delays, we have been more than reasonable but have reached the end of our patience,” Sasser says in the letter. He added that he hopes Family Dollar shareholders will support the DLTR transaction, but that management is prepared to accept whatever judgment the shareholders make.

The letter is interesting because Howard Levine himself has noted that the Federal Trade Commission has already given him feedback that the FDO-DLTR merger is likely to be approved because the proposed deal from rival Dollar General is problematic.

Dollar General has made an all-cash bid for $80 per share of FDO stock, is willing to divest itself of 1,500 DG stores, and even offered a reverse breakup fee of $500 million if the transaction doesn’t close. The FTC wants Dollar General to divest 5,850 stores, whereas it said that only 310 DLTR stores would have to be sold for a merger with FDO.

Another reason the letter is notable is because if Family Dollar shareholders fail to vote on the merger on Jan. 22, the deal could fall apart and FDO will have to pay a $305 million breakup fee.

So the big squeeze is on, but does it really help or hurt DLTR’s chances?

Nobody in the corporate world likes to be given an ultimatum, which if nothing else makes them look weak and under the thumb of another company. Furthermore, the letter raises two curious questions:

  1. If the FTC is leaning toward disapproving a merger with DG in favor of DLTR, was this letter really necessary?
  2. Does the wording that Sasser hopes shareholders will choose the DLTR transaction, but is willing to accept whatever judgment the FDO shareholders make, hint that Sasser’s confidence level about the merger is not that high?

Sasser runs the risk of sounding like a suitor who tells a young lady that he hopes she will choose him to take her to the dance, but he’s willing to accept that she might pick another fellow instead. So part of the letter is almost bullying, yet another part sounds passive.

One wonders if the letter could actually stir resentment among FDO shareholders and ultimately backfire on DLTR.

It’s also possible that shareholders don’t want to make a decision until the FTC has formally announced its ruling. If that’s the case, shareholders might again have to delay a vote on the DLTR merger. So perhaps the real motive behind Sasser’s letter to Howard Levine is to thwart any chance of shareholders using the FTC to further delay the merger.

Nevertheless, the big squeeze may have worked as intended. On Monday morning, Family Dollar put out a statement urging its shareholders to approve the $8.5 billion takeover offer from DLTR, saying that deal is a “virtual certainty” compared to the higher offer from Dollar General. So now FDO shareholders have to decide if they want the sure thing, rather than the $9.1 billion DG offer, which they actually rejected last September.

Dollar Tree also reported that talks with FTC regulators are continuing and that the company expects to have to sell fewer than 300 stores now to win antitrust approval.

Clearly the pressure is increasing on the Family Dollar shareholders to make a decision sooner, rather than later.

As of this writing, Ethan Roberts did not hold any positions in the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/01/family-dollar-tree-dltr-fdo-dg/.

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