The Dollar Tree Inc. was initially planning to merge with Family Dollar in November of this year, but delayed the merger until February 2015. It seems the company will need to disassociate some of its stores in order to receive anti-trust approval from the Federal Trade Commission. The company has revealed that it is willing to release as many stores necessary to secure the merge and is confident that it will be able to close the deal by its new schedule. The company seeks to unite the discount store market in order to become an actual competitor of Wal-Mart.
Another potential game changer is the voluntary offer made by the Dollar General Corporation who is also seeking talks with the FTC to potentially acquire the Family Dollar Stores. The Dollar General made a bid of $9.1 billion in September but was rejected by Family Dollar due to possible anti-trust issues. The Dollar General has offered to divest 1,500 stores, however, Family Dollar is not confident that the Corporation will receive regulatory approval.
The Dollar Tree initially offered an $8.5 billion bid, but has increased that bid to $9.2 billion. The company has stated that they will be able to complete the financing for the merging organizations by January, 2015. The company further states that although the Dollar Tree merge with Family Dollar will be delayed for several months, the pending merger will be in the position to be completed by early February, 2015.
The FTC is faced with determining what would be a better balance in a merger among these discount retailers and how combining the stores would affect the retail services and pricing that they offer to low-income consumers. The FTC’s biggest concerns regarding the merger of the Dollar Tree and Family Dollar stores is the current pricing rules for the store. Will this acquisition cause an increase in pricing of goods and services if the community loses a Dollar Tree Store? Additionally, will the merger cause an overlap of discount stores, and will this limit competitors in certain areas?
The Dollar Tree states that approximately 150 Family Dollar stores alter pricing due in part to the occurrence of Dollar Tree stores, while about 5,400 stores change prices due to the existence of Dollar General. The organization further states that the economic evidence supports the conclusion that Dollar General is a much closer competitor to the Family Dollar and would most likely cause an increase of pricing.
The Dollar General responded by disagreeing with the Dollar Tree’s statement and further added that their planned pricing strategy is to compete with Wal-Mart and not Family Dollar. The Corporation submitted large amounts of documentation to the FTC in order to make their case.
Even though the Dollar Tree offered a “hell or high water” clause in the merger agreement, which requires them to sell whatever stores necessary in order to obtain FTC approval of the deal, most experts seem to believe that the Dollar General will be the victor. Also, experts believe that the Dollar Tree merge with Family Dollar may be delayed even longer since the operative end date is April 27. The two organizations could agree to extend the end date if it shows the possibility of helping with the FTC approval and if they think it would be of further value.
By Kelara Pumphrey
The Business Journals
Bloomberg Business Week
Photo By Nicholas Eckhart – Flickr License