Two proxy firms back Dollar Tree; Dollar General affirms efforts

Chesapeake, Va. – In the latest scene from the continuingly unfolding saga of the battle for Family Dollar, two proxy investment firms have switched their recommendation for Family Dollar shareholders to accept and $8.5 billion bid from Dollar Tree, rather than a $9.1 billion bid from Dollar General. Glass Lewis & Co. and Institutional Shareholder Services (ISS) both cited Dollar Tree’s bid as offering a greater likelihood of success, despite being lower.



“Overall, we agree with the board's determination that the merger with Dollar Tree delivers attractive value in the form of immediate upfront cash and upside participation in the combined company, as well as greater closing certainty,” Glass Lewis said in a statement. “We also continue to believe, as we have from the beginning, that a merger with Dollar Tree is strategically and financially compelling.”



Meanwhile, ISS focused on Dollar General’s issues in negotiating potential antitrust factors with the FTC.



"Dollar General's near-silence on regulatory progress - particularly its failure to meaningfully follow through on its own unforced commitment to provide a meaningful update in December - speaks volumes,” said ISS in a statement.



Perhaps spurred by these comments, Dollar General released an update on its FTC discussions on Jan. 15. Dollar General said it has “provided the agency with tens of thousands of documents and has participated in numerous meetings with FTC staff.” Dollar General expects it will not reach substantial certification with FTC regulations until Feb. 10, but is going ahead with its bid and still urging Family Dollar shareholders to vote in favor of it bid.



Dollar General also said the FTC is using an “untested theoretical model” to determine if a merger with Dollar General is likely to increase price increases, which it says are unlikely since the companies use different pricing models. Dollar General expects FTC approval but is ready to defend FTC legislation if approval is denied. In addition, Dollar General said it does not expect to have to divest more than the 1,500 or so stores Family Dollar has previously said it is willing to get rid of in a deal.



Family Dollar shareholders are scheduled to vote Jan. 22. on whether to accept the Dollar Tree offer Family Dollar has told Dollar Tree it will not move that date, originally scheduled for late December, forward any more.



In a letter to investors Monday, CEO Howard Levine said that Family Dollar may be required by federal regulators to divest itself of 310 stores if it's acquired by Dollar Tree. Levine said that the FTC has indicated that it might need to divest itself of between 3,500 and 4,000 stores for a deal with Dollar General to go through, though that is not a final figure.



Family Dollar could reach an agreement with the Federal Trade Commission by the end of the month, Levine said, and the company has said previously that it would be willing to divest as many as 500 stores to get the deal done.