Dollar General Corp share price up, ups bid for Family Dollar, may go hostile

Dollar General Corp, the largest discount retailer in the US, went public with its latest bid to acquire its smaller rival Family Dollar, after the latter had earlier elected Dollar Trees inferior offer over Dollar Generals bid.

The new deal offers Family Dollar shareholders $80 per share, 2% higher than the previous offer, 31.9% over the closing price prior to Family Dollar announcing the Dollar Tree acquisition bid, and presents a $640 million premium to Dollar Trees offer.

“We are confident that our enhanced proposal sufficiently addresses any concerns that led Family Dollars Board of Directors to reject our prior proposal without any discussions between our companies,” said Rick Dreiling, Dollar Generals Chairman and Chief Executive Officer. “We revised our offer to demonstrate the seriousness of our commitment.”

Dollar Generals previous offer was rejected by Family Dollar last month on grounds of antitrust obstacles, seen by the latter.

Dollar General has now expressed commitment to deepen its efforts to reach compliance with antitrust legislation, saying it would divest as many as 1 500 stores, should US authorities demand it to approve the acquisition deal.

Furthermore, Dollar General agreed to to pay a $500 million reverse break-up fee to Family Dollar in the event that the transaction is not completed for antitrust reasons.

Signaling that this is its final offer, Dollar General added that should its “superior” deal be dismissed, it would go hostile and appeal to Family Dollars shareholders.

“Our revised proposal provides Family Dollar shareholders with significantly increased value over the existing agreement with Dollar Tree,” Dreiling said. “If the Family Dollar Board fails to seize this opportunity to maximize value for its shareholders, we will consider taking our superior proposal directly to the Family Dollar shareholders.”

Dollar General shares rose as much as 1.69% to $65.07 in premarket trade today. As of Fridays closing price, the company has a market capitalization of $19.41bn, having added ~18% in the last year. According to a Financial Times survey, 18 analysts offering 12 month price targets for Dollar General Corp. have a median target of $73.00, with a high estimate of $78.00 and a low estimate of $58.00. The median estimate represents a 14.08% increase from the last price of $63.99.