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Dollar Tree Inc. has agreed to acquire Family Dollar in a transaction valued at $74.50 per share, a 22.8 percent increase over Family Dollar's closing price on Friday. The deal is expected to close by early 2015.
The combined company will retain both brands and operate more than 13,000 stores in 48 states and five Canadian provinces, with sales exceeding $18 billion. Upon the closing of the transaction, Family Dollar shareholders will receive $59.60 in cash and the equivalent of $14.90 in Dollar Tree shares.
According to Bob Sasser, CEO of Chesapeake, Va.-based Dollar Tree, the acquisition aims to position the company for "accelerated growth," as well as enhance and diversify the company by offering both fixed-price and multi-price point formats, and a broader merchandise assortment.
Howard Levine, chairman and CEO of Charlotte, N.C.-based Family Dollar, will report to Sasser and will become a Dollar Tree board member when the acquisition is complete. Levin noted that the acquisition "will enable Family Dollar to accelerate efforts to improve the business and will benefit our dedicated team members who will now be part of a larger, more diverse organization.”
Dollar Tree said it expects to generate $300 million in annual run-rate synergies after three years, as well as "significant efficiencies" in sourcing and procurement, SG&A leverage, distribution and logistics efficiencies.
'Shaking Up' the Small-box Value Space
"The Dollar Tree/Family Dollar combo certainly shakes up the small-box value space, but it's not entirely unexpected," Sandy Skrovan, research director-US at London-based Planet Retail, said in an e-mail. "Underwhelming financials recorded by several value retailers this past year and, more recently, some ‘shaky’ quarterly comparable-store sales results -- including those of Family Dollar -- suggested possible overexpansion or at least expansion at too aggressive a pace.
"Dollar Tree could very well leapfrog long-time market leader Dollar General," Skrovan continued. "The merger also provides additional and more formidable competition for Walmart as it accelerates its own small-box expansion via Walmart Express."