Dollar-Store CEOs Clash Over Events Before Rejected Deal

The dollar-store wars are devolving into a he said-he said dispute.

Dollar General Corp. says Family Dollar Stores Inc. misled it by not mentioning that it was in takeover talks with Dollar Tree Inc. Family Dollar says it couldn’t disclose those discussions and that Dollar General didn’t express any interest in a deal when their chief executive officers met.

The two sides are making their cases in advance of a possible shareholder vote on Dollar Tree’s offer, which would create a retailer with more stores than current market leader Dollar General. Family Dollar is painting a picture of Dollar General as an unserious suitor that only decided to bid after discovering its rival’s offer and hasn’t adequately addressed antitrust issues. Dollar General, meanwhile, is portraying Family Dollar’s leadership as more interested in its own wellbeing than that of its shareholders.

Family Dollar, which today rejected its competitor’s $9 billion bid, said in public filings that Dollar General CEO Rick Dreiling didn’t indicate at a June 19 meeting that it was interested in pursuing a deal.

Dollar General maintains it said the exact opposite and that Family Dollar CEO Howard Levine didn’t mention that his company had since March been in takeover talks with Dollar Tree, which made the $8.5 billion bid that Family Dollar still favors.

Breakup Fee

The day after the meeting at issue, Dollar Tree CEO Bob Sasser offered $74.50 a share, convincing Family Dollar’s board to approve the start of negotiations. The two chains announced the acquisition on July 28.

That deal includes a $305 million fee that must be paid to Chesapeake, Virginia-based Dollar Tree if Family Dollar chooses another suitor. Dollar General said it would have acted differently had it known that a deal between its two smaller rivals was in the works.

“At no time during this meeting did Mr. Levine indicate that there was a process, that there was any urgency to act or that there were discussions with another potential buyer,” Dreiling, 61, said in a letter sent to Matthews, North Carolina-based Family Dollar yesterday. “In fact, Mr. Levine’s response to specific questions posed by our representatives gave us quite the opposite impression.”

About three weeks after the Dollar Tree deal was announced, Goodlettsville, Tennessee-based Dollar General made a counterbid of $78.50 a share, a 5 percent premium to Dollar Tree’s. Dollar General said it would be willing to sell as many as 700 stores to get antitrust approval.

Levine’s Role

However, the offer didn’t specify a future position for Levine, whose father founded Family Dollar. Dreiling suggested in his letter that may be the reason Levine, 55, favors the Dollar Tree proposal, which includes keeping him on as CEO of Family Dollar, reporting to Sasser, who’d run the combined entity.

“We have presented you with a superior proposal for your shareholders (although perhaps not for Mr. Levine personally),” Dreiling said in the letter. “We urge you to evaluate our proposal on its merits considering this full set of facts and in keeping with your obligation to consider first and foremost the best interests of your shareholders.”

Icahn Enters

That’s a sentiment echoed by billionaire activist investor Carl Icahn, who stirred up the dollar-store world when he disclosed a 9.4 percent stake in Family Dollar on June 6. According to Family Dollar, Icahn called Levine later that day asking to discuss the company’s future, including possible mergers. Icahn has pushed for a sale ever since.

“How far will crony boards go (and get away with it legally) to protect the CEO at the expense of shareholders?” he said in a statement on Aug. 18. “At too many companies in America the hubris of the CEO, supported by a crony board, costs shareholders billions of dollars, and worse, it costs our economy even more.”

Family Dollar responded it couldn’t mention the Dollar Tree talks because of a nondisclosure agreement. The retailer also said its board unanimously rejected Dollar General’s offer because the deal wasn’t likely to be completed the way it was structured.

Family Dollar has argued that it tried to attract Dollar General for months, only to see the company delay meetings or express little interest. Despite Levine meeting with Dollar General representatives last October to talk about a possible deal, an offer never materialized.

Missed Meetings

Dollar General asked for a meeting in January, then postponed the event until later in the month before canceling it completely and asking to meet “in the spring.” In May, Levine sent a Family Dollar board member his contact information to arrange a meeting. It didn’t happen.

Family Dollar’s largest outside shareholder, Trian Fund Management LP, has a seat on its board, providing incentive to seek the highest offer. Ed Garden, co-founder of the investment firm, serves on the committee overseeing the sale process.

“Dollar General’s letter, sent late last night, contained blatant mischaracterizations and did nothing to address the antitrust issues in Dollar General’s proposal,” Levine said in today’s statement.

After its offer was spurned, Dollar General said in a separate statement that it remains committed to buying Family Dollar and is confident it can resolve any antitrust obstacles.

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