Discount retailer Family Dollar Friday rejected a sweetened $9.8 billion takeover offer from Dollar General as it sought to discourage a hostile campaign that could threaten its deal with Dollar Tree.
For the second time in a month, Family Dollar's board raised the issue that the unsolicited merger proposal would give Dollar General too much market power with 20,000 stores, mostly serving low-income areas, and bring a delay if not a veto from the Federal Trade Commission.
"There is a very real and material risk that the transaction proposed by Dollar General would fail to close, after a lengthy and disruptive review process," Family Dollar chief executive Howard Levine said.
Levine reiterated the board's support for the July offer from Dollar Tree, even if it remains substantially lower than Dollar General's.
The Dollar Tree proposal "delivers attractive value in the form of immediate upfront cash and upside participation in a combined Dollar Tree-Family Dollar entity, as well as closing certainty," he said.
Dollar General, which has suggested it might launch a hostile campaign for support from Family Dollar shareholders, said Friday that "it remains committed to acquiring Family Dollar and is currently evaluating its next steps."
Dollar Tree also stepped into the fray Friday, announcing that it revised its agreement with Family Dollar to divest as many stores as necessary to clear antitrust clearance with the FTC.
"Our amended agreement is clearly superior to Dollar General's revised proposal based on antitrust risk, deal certainty and time value of money," said Dollar Tree chief executive Bob Sasser.
Sasser said he expects a second information request from the FTC next week and that he is "confident" the deal will close by the end of November 2014.
In July Dollar Tree, a smaller discount chain than industry leader Dollar General, bid $74.50 a share for Family Dollar, worth $9.2 billion including debt.
After that deal was accepted, Dollar General came in with an unsolicited $78.50 a share offer, worth $9.7 billion with debt, which Family Dollar's board quickly rejected last month, saying they did not expect FTC regulators to accept it.
Dollar General then upped the offer to $80 a share, promising to divest up to 1,500 stores to assuage regulators and saying it would consider taking its bid directly to Family Dollar shareholders if "the Family Dollar board fails to seize this opportunity.
The latest Dollar General bid values Family Dollar at about $9.8 billion, including debt.
But Family Dollar's board again rejected Dollar General on Friday
It said the latest proposal still underestimated the extent of the divestitures that would be mandated due to the regional overlap between the two companies.
More than 6,000 Family Dollar stores compete with Dollar General stores within three miles (five kilometers), according to Family Dollar. A merger between the two would raise red flags at the FTC due to the impact of more limited shopping choices on consumers.
"The FTC's detailed review of so many local geographic areas would likely result in a prolonged review process," Family Dollar said.
"Further, the FTC will likely give this proposed transaction particularly close scrutiny because both Dollar General and Family Dollar focus on selling basic needs at low prices to lower-income customers."
Dollar General has more than 11,500 stores in 40 states, while Family Dollar has more than 8,200 stores in 46 states. Dollar Tree has 5,166 stores in 48 states.
In afternoon trade Friday, Family Dollar fell 1.3 percent to $79.01, Dollar General lost 2.5 percent to $62.84 and Dollar Tree gained 1.2 percent to $55.67.