Dollar General Corp made an offer to buy Family Dollar Stores Inc. for $9.7 billion, setting off bidding rivalry for a firm that had accepted an $8.5 billion acquisition by Dollar Tree Inc. last month.
Dollar General intends to pay $78.50 per share, as opposed to $74.50 per share in cash and stock offered by Dollar Tree, according to a statement on Monday. The acquisition will make $550 million to $600 million in cost reductions yearly for three years after its conclusion, Dollar General said.
“We look forward to expeditiously entering into constructive discussions with Family Dollar in order to sign a definitive merger agreement,” CEO Rick Dreiling is quoted by Bloomberg as saying in a statement today.
Dollar General is competing to retain its dollar-store industry leadership. A partnership between its two competitors would have formed a new market leader, pushing higher rivalry at a time when Wal-Mart Stores Inc. is also closing in with new smaller-format shops.
The Dollar General chain is not that different from Family Dollar’s making it possible for it to benefit immensely from an acquisition than Dollar Tree, analyst Poonam Goyal of Bloomberg Intelligence said.
While Dollar Tree targets middle-class consumers and offers most items for $1, the other two rivals cater to low income buyers and sell food at various price points. If merged, Dollar General and Family Dollar would rake in around $28 billion in yearly revenue.
“Dollar General can more easily justify a higher price because of the greater potential operating synergies. The acquisition would do more to transform Dollar Tree’s business,” Professor Erik Gordon of the University of Michigan’s Ross School of Business said.
Dollar General shares rose on the developments in the morning, gaining as much as 10% to trade at $63.02, according to USA Today. Dollar Tree lost less than 2% in midday trading.
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