The retailer expects to use $5.4 billion of term loans, $2.8 billion of senior unsecured notes, a $1.25 billion revolver, and $569 million of cash on hand to fund the deal, according to an investor presentation today. JPMorgan Chase & Co. is providing financing for the transaction.
The proposed acquisition may raise Dollar Tree’s ratio of debt to a measure of cash flow 70 percent, to 5.6 times, according to the presentation. The increased leverage puts Family Dollar, which has the lowest investment-grade ratings from Moody’s Investors Service and Standard & Poor’s, at risk for a cut to junk level, according to a Bloomberg Intelligence report.
Dollar Tree will pay $74.50 a share, a 22.8 percent premium to Family Dollar’s closing price at the end of last week, according to a statement from the companies. The deal has a value of about $9.2 billion including debt.
“This acquisition will extend our reach to lower-income customers and strengthen and diversify our store footprint,” Dollar Tree Chief Executive Officer Bob Sasser said in a statement. The Chesapeake, Virginia-based company has three bond issues, totaling $750 million and maturing from 2020 to 2025, according to data compiled by Bloomberg.
The transaction fulfills the ambitions of two billionaire activist investors, Carl Icahn and Nelson Peltz, who had acquired major stakes in Family Dollar and pushed for a sale.
Family Dollar is rated Baa3 by Moody’s and BBB- by S&P. High-yield, high-risk, or junk, debt is rated below Baa3 at Moody’s and lower than BBB- by S&P.
To contact the editors responsible for this story: Shannon D. Harrington at email@example.com Mitchell Martin, Caroline Salas Gage