It’s a good time to be in the dollar store game. Between 2008 and 2013, the U.S. customer appetite for dollar stores has increased by 45.7% to $48.2 billion. In the next five years the dollar store business is expected to increase another 18%. And that is why Dollar General feels quite confident with its $8.95 billion dollar offer as it enters the Family Dollar bidding war.
Family Dollar is currently the number two discount savings store in the country. Its stock finished at $80.00 in regular trading on Monday, August 18. That number is $1.50 higher than the all cash offer Dollar General had made at $78.50 a share. Some believe that the stocks positive performance represents investor confidence that the bidding war is far from over. In a move to explain Dollar General’s interest in Family Dollar, Dollar General CEO Rick Dreiling stated, as reported by RushHourDaily,
“We have a tremendous amount of strength in the rural communities and we have things to learn in the metro. Family Dollar is just the reverse.”
If the deal goes through it would result in a combined 20,000 stores across 46 U.S. and $28 billion in sales. More importantly, the deal would also allow Dollar General to keep its number one spot on top of the dollar store game. If Dollar Tree’s $8.5 billion dollar bid had/is accepted, the General would be knocked down from its top tier. Dreiling has already announced that he will no longer be retiring as previously planned. Instead he will stay on as CEO to oversee the buyout through May 2016.
A partnership between Dollar General and Family Dollar appears to be a more symbiotic relationship than if the deal was struck with Dollar Tree. Family Dollar and Dollar General both have similar pricing structures, while Dollar Tree keeps to a strict $1 or less system. Geographically, the pair meshes strongly as well. Both stores have incredibly strong representation in Texas. Dollar General has 1,000 stores in the state alone.
Still, this does not seem to be enough to swade Family Dollar to accept Dollar General’s offer. Though the company said that they would review it, they were not planning on changing their recommendation in favor of Dollar Tree. Billionaire Carl Icahn, who recently acquired a 9.5% share in the company, has urged Family Dollar and the other shareholders to merge with Dollar General. As of July 30, Ichan cut his stake in the company back to 3.6%. Still, nothing has been signed. It may be Family Dollar’s attempt to goad a bigger offer out of Dollar General.
Featured image via flickr/NNECAPA Photo Library
