Family Dollar Rejects Buyout Offer From Peltz's Trian, Adopts Poison Pill

Family Dollar Stores Inc. (FDO) rejected a hostile takeover offer from Nelson Peltz’s Trian Fund Management LP, saying it “substantially” undervalues its business, and adopted a defense to discourage unsolicited offers.

A plan outlined last year to accelerate store openings and remodelings, and to repurchase shares, is the best way to deliver value to shareholders, the Matthews, North Carolina- based discount retailer said today in a statement.

Family Dollar shares had fallen seven of the ten days since Trian’s offer Feb. 15, through yesterday, signaling investors were skeptical about the bid of $55 to $60 a share, or as much as $7.7 billion. Peltz, an activist investor who rarely buys entire companies, hadn’t arranged financing for what would be the biggest acquisition of a U.S. retailer in six years.

It’s unlikely Family Dollar will get a higher bid, Matt Arnold, an analyst at Edward Jones & Co. in Des Peres, Missouri, said today in a telephone interview. “Family Dollar is still run by a member of the founding family. Usually people in that position are passionate about maintaining control of day-to-day decisions.”

Arnold cut his rating on the stock to “sell” from “hold” after Trian’s offer, betting the shares would decline.

Family Dollar fell 42 cents to $49.97 at 10:13 a.m. in New York Stock Exchange composite trading. The shares jumped 21 percent on the first trading day after the offer and had since slumped 5.4 percent through yesterday.

Contacted CEO Levine

The Trian offer is “not in the best interest of shareholders,” the discount retailer said.

Trian declined to comment on Family Dollar’s decision, said Carrie Bloom, a spokeswoman for the hedge fund.

Trian is one of Family Dollar’s largest shareholders, with a stake of about 8 percent, according to a securities filing last month. Trian contacted Family Dollar Chief Executive Officer Howard Levine, also one of the largest shareholders and son of the founder, on Feb. 15 to give him the opportunity to participate as an investor, according to the filing on that day.

The shareholders’ rights plan adopted by the board will last 12 months and has a 10 percent ownership threshold, Family Dollar said today. The so-called poison pill will reduce the likelihood that any person or group will gain control of the company by buying shares on the open market or without paying a premium for all shares, the company said.

Family Business

Analysts including Mark Miller of William Blair & Co. in Chicago had predicted Family Dollar would resist a takeover.

The retailer, started as a single store in 1959 by Levine’s father Leon, has a “paternalistic culture” and may accelerate stock buybacks and cost cuts to remain independent, Miller said in a Feb. 16 note.

Trian disclosed a stake in Family Dollar last year and urged the retailer to boost sales growth.

Levine has since accelerated the opening and remodeling of stores. Family Dollar also has added more groceries and other consumables to grab shoppers from Wal-Mart Stores Inc. (WMT) and other rivals competing for consumers pinched by high unemployment.

Family Dollar, which operates more than 6,800 stores, increased sales at outlets open at least 13 months by 6.9 percent in the quarter ended Nov. 27. By the same measure, larger Dollar General Corp. (DG) boosted sales by 4.2 percent in the three months ending Oct. 29.

To contact the reporter on this story: Chris Burritt in Greensboro at cburritt@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net

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