Family Dollar Shareholders Approve Takeover By Dollar Tree
The Great Recession hobbled the U.S. economy and crushed many businesses, but some companies thrived, including the so-called "dollar" stores.
Shoppers flocked to them because you could buy a lot with not much money. And as the economy rebounds, people are still going to some. But one chain, Family Dollar, hasn't kept pace with its competitors.
Shareholders of Family Dollar voted Thursday to sell to a rival chain, Dollar Tree, for $8.7 billion. In doing so, shareholders left a bigger offer from Dollar General on the table, citing antitrust fears.
For those who haven't been to one of Family Dollar's 8,000 U.S. stores, they sell a variety of things such as paper towels, sodas and children's clothes. But these things don't actually cost a dollar.
Inside a store in Charlotte, N.C., shelves have a range of prices. Car fresheners are $2.65, dog treats for $4, and a plastic toy monster truck costs $10.
"Well, I just bought some chips, a soda and some jelly beans," says Michelle Williams. She says this is where she does most of her shopping, for everything.
"Especially when you're limited on money and can't get the stuff that you need out of grocery stores, the same thing in the grocery store is in here, cheaper," she says.
But one of the problems, says retail consultant Howard Davidowitz, is that since the recession, profits have risen, but not very fast.
"At the end of the day, Family Dollar fell on their face because they didn't execute correctly, and they allowed their competitors to beat their brands, and they've been closing stores like crazy in a segment where everybody is opening stores," Davidowitz says. "What does that tell you?"
It told the company's two other big competitors it was a good time to buy. In July, executives worked out an $8.5 billion deal with Dollar Tree, a smaller rival. (It's now worth $8.7 billion because of the rise in Dollar Tree's stock.) The biggest discount store, Dollar General, quickly made an even higher offer, $9.1 billion in cash, including a $500 million breakup fee.
"Why didn't we take it?" asks Gary Burgess, who owns 200 shares of Family Dollar with his wife and came to the vote in Charlotte. He wasn't happy about the decision.
"If it didn't go through, we walk away with half a billion dollars," he says. "To me that's a hell of a good deal."
Family Dollar CEO Howard Levine says the deal with Dollar General looked better on paper, but executives wanted the lower bid, and shareholders approved it Thursday.
"Both deals were very good offers, and what we wanted was certainty," says former North Carolina Commerce Secretary Sharon Decker, who is a member of Family Dollar's board of directors. "Communities depend on these stores, so bringing certainty to that was very, very important, so that was a big part of this decision."
Mergers between such large companies require approval from the Federal Trade Commission. If Family Dollar chose the higher bid from Dollar General, the FTC said it would want to close 4,000 stores to prevent a monopoly in some markets.
The accepted deal is different. All of Dollar Tree's items sell for a buck or less, so, there's not as much conflict. Only about 300 stores are expected to close, and Family Dollar's headquarters will remain in the Charlotte area.
Dollar Tree also promised to keep Levine, whose dad, Leon, founded the company in 1959. It's a prominent name in Charlotte with the Levine Center for the Arts and the Levine Museum of the New South named after the family. And under the terms of the merger, the name Family Dollar will stick around too.
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Transcript
AUDIE CORNISH, HOST:
The recession hobbled the U.S. economy and crushed a lot of businesses. Some also did really well during that time, like dollar stores. Shoppers flocked to them. As the economy has improved, one chain, Family Dollar, hasn't kept pace with its competitors. Today, shareholders voted to sell to a rival, as Ben Bradford of member station WFAE reports.
BEN BRADFORD, BYLINE: For those who haven't been to one of Family Dollar's 8,000 U.S. stores, they sell paper towels, sodas, children's clothes, but these things don't actually cost a dollar. Inside a store in Charlotte, shelves have a range of prices.
There are car fresheners that are $2.65, dog treats for $4 and...
(SOUNDBITE OF TOY TRUCK)
BRADFORD: That's a plastic toy monster truck - $10.
Outside in the parking lot, Michelle Williams has just finished her shopping and she clutches a small bag.
MICHELLE WILLIAMS: Well, I just bought some chips, a soda and some jelly beans (laughter).
BRADFORD: And some jelly beans. All right.
This, Williams says, is where she does most of her shopping for everything.
WILLIAMS: Especially when you're limited on money and can't get the stuff that you need out of grocery stores. The same thing in the grocery store is in here, but cheaper.
BRADFORD: But today, Williams is one of the few customers here. And that's been one of the problems, says retail consultant Howard Davidowitz. Since the recession, profits have risen, but not very fast.
HOWARD DAVIDOWITZ: At the end of the day, Family Dollar fell on their face 'cause they didn't execute correctly. And they allowed their competitors to beat their brains in. They've been closing stores like crazy in a segment where everybody is opening stores. What does that tell you?
BRADFORD: It told the company's two other big competitors it was a good time to buy. In July, executives worked out an $8.5 billion deal with Dollar Tree, a smaller rival. The biggest discount store, Dollar General, quickly made an even higher offer - $9 billion cash, including a half-billion dollar deposit.
GARY BURGESS: Why didn't we take it?
BRADFORD: Gary Burgess owns 200 shares with his wife and came to the vote in Charlotte. He wasn't happy.
BURGESS: If it didn't go through, we walk away with half a billion dollars. To me that's a hell of a good deal.
BRADFORD: Family Dollar executives agreed. CEO Howard Levine admits it was better on paper, but executives wanted the lower bid and shareholders approved it today. Board member and former North Carolina Commerce Secretary Sharon Decker says the smaller bid is the right one.
SHARON DECKER: Both deals were very good offers and what we wanted was certainty. Communities depend on these stores, so bringing certainty to that was very, very important. So that was a big part of this decision.
BRADFORD: Mergers between such large companies require approval from the Federal Trade Commission. Had Family Dollar chosen the higher bid from Dollar General, the FTC said it would want to close 4,000 stores to prevent a monopoly in some markets. The accepted deal is different. All of Dollar Tree's items are a buck or less, so not as much conflict. Only about 300 stores are expected to close, and Family Dollar's headquarters will remain in the Charlotte area.
Dollar Tree also promised to keep the CEO of Family Dollar, Howard Levine. His dad, Leon, founded the company in 1959. It's a prominent name in Charlotte - Levine Center for the Arts, Levine Museum of the New South. And under the terms of the merger, the name Family Dollar will stick around, too. For NPR News, I'm Ben Bradford in Charlotte. Transcript provided by NPR, Copyright NPR.
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