Dollar General (DG), the country’s largest dollar-store chain, this morning made a $9.7 billion bid for Family Dollar (FDO). It’s Dollar General’s best effort to trump Family Dollar’s existing $9.2 billion merger agreement with Dollar Tree (DLTR), made in July. The addition of Family Dollar would make either Dollar General or Dollar Tree (and more on the difference between the two in a moment) the biggest discount chain in the country.
A Dollar General-Family Dollar tie-up would yield about 19,580 stores in 46 states and more than $28 billion in combined sales. The Dollar Tree deal would result in a smaller but still very big 13,000-store empire.
Dollar General and Family Dollar are basically the same kind of store—they both sell merchandise across a range of price points, and their product mix is similar, as the charts below show.
Dollar Tree, on the other hand, is a dollar store in the truest sense: Everything costs $1. Acquiring Family Dollar would give it diversity beyond its single-price model and a way to expand into urban and rural markets.
Dollar General did not say whether the combined companies would operate as one brand, but Chief Executive Rick Dreiling did tell investors on a call on Monday morning, “When this deal gets done, the Family Dollars will look exactly like a Dollar General on the inside.”
Dreiling promised to postpone his planned retirement to May 2016 to oversee the acquisition. And Dollar General’s bid includes an agreement to fund Family Dollar’s $305 million breakup fee to Dollar Tree.
It seems Dollar General had been left in the dark about Family Dollar’s deal last month. “We have expressed interest in a combination with Family Dollar multiple times over the last few years. Suffice it to say for someone who was supposedly involved in a process, we were very surprised by Family Dollar’s announcement with Dollar Tree,” Dreiling said on the call. But, he said, “It’s water under the bridge.”
A chain of this size is sure to attract the scrutiny of regulators, so Dollar General is prepared to sell as many as 700 stores to gain antitrust approval. “We don’t believe the antitrust is the matter of concern,” Dreiling said during the call.