Family Dollar 'misled,' rejects takeover bid by Dollar General

Family Dollar (NYSE:FDO) has rejected the $9.7 billion takeover bid from Dollar General (NYSE:DG). The retailer stated that the offer, made earlier this week, was turned down based on antitrust issues. However, ousted Family Dollar CEO and board member Carl Icahn is saying that the move was more about current CEO Howard Levine's leadership role.

Family Dollar announced today that it would stick to its original deal with Dollar Tree (NASDAQ:DLTR) for $8.5 billion. But what's behind the rejection?

In a letter earlier this week sent to the Family Dollar board, Dollar General stated that Levine repeatedly ignored invitations to sell the company because he wanted to stay on as boss, reported the New York Times blog. The letter also stated that a recent filing with the Securities and Exchange Commission describing the deal between Family Dollar and Dollar Tree last month was less than forthcoming.

"It fails to mention that Dollar General representatives have consistently expressed a keen interest in putting our two companies together," Dollar General said in a statement. The filing also failed to mention that Levine had expressed his own interest in staying on as CEO of the combined companies.

"We cannot help but question whether Dollar General's failure to embrace such requests by Mr. Levine weighed into Family Dollar's decision to pursue an agreement with Dollar Tree," the statement continued.

The same concerns have been voiced by Icahn, who holds a large stake in Family Dollar and had urged it to consider a deal with Dollar General since the company was put on sale back in June. In a recent blog post, Icahn pointed out that Family Dollar agreed to pay a $305 million fee if it backed out if its deal with Dollar Tree.

"Could the fact that Family Dollar's CEO, Howard Levine, has a future role in a Dollar Tree/Family Dollar merger have anything to do with it?  Dreiling stated that for several years he's been trying to enter discussions with Family Dollar and it seems obvious that in a Dollar General/Family Dollar merger, Levine would not have any future role," wrote Icahn in his blog.

Dollar General's letter also alluded to the fact that at the time of talks, Levine never indicated there was another potential buyer. The letter drew attention to the breakup fee, stating that the $305 million could have been better used to maximize value for the Family Dollar shareholders. Finally, it stated that Dollar General's proposal was clearly superior and urged Family Dollar to re-evaluate the proposal for everyone's best interest.

Today, Family Dollar tried to move the focus of the decision to antitrust laws, stating that merging the two largest dollar store chains would pose a risk. Family Dollar admitted to entertaining talks with Dollar General over the last year and a half, but the company said talks took a turn for the worst when Dollar General declined to meet and discuss antitrust issues with Family Dollar in June.

"Dollar General declined to schedule a discussion on antitrust issues. A meeting was scheduled between the parties on June 19, 2014," Family Dollar said in a statement.

Shortly thereafter, in July, the merger of Family Dollar and smaller discount retailer Dollar Tree was announced.

"I would also like to note that Dollar General's letter, sent late last night, contained blatant mischaracterizations and did nothing to address the antitrust issues in Dollar General's proposal," said Levine in response to the Dollar General statement.

At the very least, the rejection slows down the momentum of the merger, giving all parties time to evaluate and potentially revise offers, or for a third party to come forward.

"The antitrust issues are an excellent bomb for Family Dollar to be throwing. It will definitely clog up the works," James Gellert, CEO of Rapid Ratings, told FierceRetail. "Raising the red flag on antitrust instead of sticking to the price or any of the other elements of the deal gives Dollar General shareholders pause. They'll need to strongly consider how hard they want to go after [Family Dollar]."

Gellert contends that of the three retailers, Dollar Tree has the strongest financial health, with a rating of 78 on his company's 1-100 scale, compared to Dollar General (70) and Family Dollar (73). Rapid Rating evaluates companies based on various financial metrics.

"Dollar Tree really stands out as the one doing the most with the least," Gellert said. "Bottom line, all are in quite strong financial health positions but the one that seems to get the most short shrift in the discussion here is Dollar Tree, and it is the strongest."

For more:

-See this Carl Icahn blog
-See this New York Times blog
-See this New York Times article
-See this Family Dollar press release

Related stories:
Family Dollar adopts poison pill to fight off Icahn
Family Dollar to close 370 stores amid plummeting earnings
Family Dollar expands food assortment, lowers prices
Family Dollar COO Michael Bloom exits, Jason Reiser promoted to EVP, CMO
Family Dollar's earnings spike represents Dollar Stores' growth

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