Report: Dollar General would have to divest 4,000 stores in Family Dollar bid

NEW YORK — The New York Post on Wednesday reported that Dollar General may have to divest as many as 4,000 stores to satisfy the Federal Trade Commission in its bid for Family Dollar, citing sources close to the situation. 

 

That represents more than 20% of the chain as it stands today. 

 

According to the Post sources, FTC is concerned that Dollar General and Family Dollar are less competitors of food, drug and mass channels and more competitors of one another in the dollar channel. This presents a problem for Dollar General, the Post noted, because any debate with the FTC over which retailers are primarily in competition with Dollar General could extend the process by six months. And Family Dollar announced Wednesday that it will be deciding on its merger proposal with Dollar Tree on Dec.  

 

"While it remains to be seen the validity of today’s NY Post article that Dollar General would need to divest 4,000 stores," noted Sterne Agee analyst Chuck Grom. "At the end of the day, 4,000 stores is a big number." Grom gives it a 10% probability that Dollar General will terminate the deal, however.



"While we deem the likelihood of Dollar General completely walking away from its current Family Dollar bid as 'low,' it’s plausible that Dollar General could abandon the plan and move on as a standalone entity. With a strong existing management team, significant unit growth potential, and opportunities to lever up the company’s balance sheet (and aggressively repurchase stock) – this could be a path that Dollar General chooses in the coming months," Grom wrote. 

 

Grom believes one of two scenarios are more likely outcomes, that Dollar General keeps its bid for Family Dollar at $80 per share and accepts the divestiture of 4,000 stores, or that Dollar General raise its bid to $85 per share. "We believe that Dollar General would head in this direction, if they don’t believe the rumblings that the FTC is looking for 4,000 closures/divestures," Grom said. "The $5 per share increase in the bid would help compensate shareholders for the additional time it may take to close a DG/FDO deal."

 

Also a possibility is that Dollar General drops its bid for Family Dollar and bid for Dollar Tree instead. "Recently, we’ve heard some speculation that Dollar General could make a bid on peer Dollar Tree instead of Family Dollar. While the marriage of the two largest dollar store players seems unlikely, in our opinion, anything is possible," Grom concluded.