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Dollar Tree to Acquire Family Dollar

Combination of Discount Retailers Will Operate More Than 13,000 Stores Across 48 States and Five Canadian Provinces
July 28, 2014
Dollar Tree Inc. entered into a definitive merger agreement to acquire Family Dollar Stores Inc. for about $8.5 billion in a cash and stock.

The transaction, which has been unanimously approved by the boards of both companies, is expected to close by early 2015.

Calling it a transformational opportunity, Bob Sasser, Dollar Tree’s CEO, said following the acquisition of Family Dollar Stores, Dollar Tree will become a leading discount retailer in North America, with over 13,000 stores in 48 states and five Canadian Provinces, sales of over $18 billion, and more than 145,000 employees,

Dollar Tree, which operates about 5,080 stores plans to deliver significant synergies by. accelerating and augmenting the much larger Family Dollar’s recently introduced strategic initiatives.

After announcing declining sales and lower profits for the second quarter, discount retailer Family Dollar Stores Inc. said it plans to close 370 of its 8,200 stores and slow the pace of new store growth. The retailer also said it plans to cut prices on many items in its stores in hopes of attracting more shoppers.

Dollar Tree said it intends to retain each of its current brands and keep the Family Dollar brand as well, but will "optimize" the combined real estate portfolios.

Dollar Tree expects to generate $300 million of savings per year by the third year after the merger.

According to analysts, Dollar Tree targets customers within a broad range of Middle America with stores located primarily in suburban areas and Family Dollar targets low- and lower-middle income households through its urban and rural locations.

"We are not entirely surprised by the Dollar Tree acquisition," said Sterne Agee analyst Chuck Grom. The Tree has historically been more acquisitive. While the synergies and ability to improve key operating metrics at FDO are not as 'visible' (vis-à-vis a DG purchase), there is no doubt that Dollar Tree’s adherence to lower prices and quality real estate locations will help improve the earnings performance at [Family Dollar]."

Standard and Poor's analyst said they expect that competition from peers and e-commerce will continue to drive consolidation and lead to more store closings.

If the merger is completed Dollar Tree will overtake Dollar General as the largest owner of such stores in the country. Dollar General owned 11,338 stores in 40 states as of May 2, 2014.

The transaction is subject to Family Dollar stockholder approval. Howard R. Levine and Trian Fund Management LP and funds managed by it, which collectively own approximately 16% of the outstanding stock of Family Dollar, have entered into voting agreements in support of the merger.

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