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Icahn Buys Family Dollar Stake, Seek Talks to Boost Value

Billionaire activist investor Carl Icahn amassed a new 9.4 percent stake in Family Dollar Stores Inc. (FDO) and will seek talks with the discount retailer’s management and board about ways to boost shareholder value.

Icahn and his affiliates bought 10.7 million shares and options for about $265.8 million, according to a filing yesterday with the U.S. Securities and Exchange Commission. He may push for operating changes and ask the company to explore strategic alternatives, as well as potentially seeking board seats, according to the filing.

“Carl Icahn is not someone who’s taken lightly,” said Anthony Chukumba, a New York-based analyst at BB&T, who has a hold rating on the stock. “He has a track record.”

Family Dollar has been the subject of takeover speculation since another activist investor, Nelson Peltz, made an unsolicited bid in 2011 in an attempt to attract other suitors. None surfaced. One impediment may be Chief Executive Officer Howard Levine, who has been reluctant to sell the company his father founded. Even so, Family Dollar said earlier this year that it would conduct a business review to seek ways to improve its finances.

The retailer’s stock rose as much as 12 percent to $68 in late trading after Icahn made the disclosure. The shares had slid 6.8 percent this year through the close in New York yesterday, leaving the company with a market value of $6.89 billion.

Photographer: Scott Eells/Bloomberg

Carl Icahn, billionaire investor and chairman of Icahn Enterprises Holdings LP. Close

Carl Icahn, billionaire investor and chairman of Icahn Enterprises Holdings LP.

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Photographer: Scott Eells/Bloomberg

Carl Icahn, billionaire investor and chairman of Icahn Enterprises Holdings LP.

The discount chain has taken note of Icahn’s investment and is “committed to driving value for all Family Dollar shareholders,” it said in a statement after the disclosure.

‘Welcome Input’

“The Family Dollar board of directors and management team are open to dialogue with all shareholders and welcome input toward the shared goal of enhancing value,” the retailer said. “We are taking steps to strengthen our value proposition, increase operational efficiencies and improve financial performance.”

As an activist investor, Icahn has been a frequent antagonist to management at companies such as Apple Inc. (AAPL), Netflix Inc. (NFLX) and Dell Inc. Icahn ended an acrimonious battle with EBay Inc. (EBAY) in April, settling to add an independent director and dropping efforts to split off the PayPal payments unit after conversations with EBay CEO John Donahoe.

With Family Dollar, Icahn hopes “to continue our streak of value enhancement,” he said in a Twitter posting.

The company, a chain of budget stores based in Matthews, North Carolina, faces mounting competition from rival discounters, drugstores and big-box retailers such as Target Corp. and Wal-Mart Stores Inc. As sales slump, the company is closing about 370 underperforming stores and opening fewer new ones.

Photographer: Michael Nagle/Bloomberg

Shoppers wait in line at a Family Dollar Stores Inc. store in Belleville, New Jersey. Close

Shoppers wait in line at a Family Dollar Stores Inc. store in Belleville, New Jersey.

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Photographer: Michael Nagle/Bloomberg

Shoppers wait in line at a Family Dollar Stores Inc. store in Belleville, New Jersey.

Trian Deal

Peltz’s firm, Trian Fund Management LP, is one of Family Dollar’s biggest shareholders, with a stake of about 7.4 percent. The investor withdrew its offer to buy Family Dollar as part of an agreement that added Trian’s Edward Garden to the board.

Icahn’s funds, meanwhile, “see great long-term potential in the issuer’s industry and believe the issuer’s current situation is analogous to that recently faced by companies such as CVR Energy, Forest Laboratories, Chesapeake Energy and Biogen, as well as a number of other companies over the last two decades,” according to yesterday’s filing. In those examples, Icahn’s “involvement helped to generate tremendous returns for all shareholders,” he said.

Activist investors tend to buy at least 5 percent of a company’s stock and flag their intention to actively engage corporate executives and directors by disclosing their holding in a 13D filing with the SEC.

In this case, Icahn may seek to merge Family Dollar with another discount chain, Dollar General Corp. (DG), BB&T’s Chukumba said. Still, Levine is the company’s largest shareholder, in addition to serving as chairman and CEO. So Icahn’s involvement might not change the direction of the company.

“It’s interesting, but I don’t think it necessarily means that anything happens,” Chukumba said.

To contact the reporter on this story: Beth Jinks in New York at bjinks1@bloomberg.net

To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net Ben Livesey

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