Dollar Tree agrees to buy rival Family Dollar in $8.5 billion deal

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Dollar Tree Monday agreed to buy rival Family Dollar for about $8.5 billion, a combination that could topple Dollar General as the leader in the small-box, deep-discount arena.

“It’s now a two-horse race with Dollar General and pumped-up Dollar Tree jockeying for ascendancy in the U.S. value channel,” said Sandy Skrovan, research director-U.S. at Planet Retail.

The transaction also will provide more formidable competition for the country’s biggest retailer, Walmart, as it accelerates its small-box expansion via Walmart Express, Ms. Skrovan said.

The deal, expected to be completed early next year, comes amid pressure from activist investors Carl Icahn and Nelson Peltz for the struggling Family Dollar to find a buyer.

Bob Sasser, CEO of Chesapeake, Va.-based Dollar Tree, called the acquisition transformational. He said the combined company would have more than 13,000 stores in 48 states and five Canadian provinces with sales of over $18 billion.

That compares with Tennessee-based Dollar General’s sales of roughly $17.5 billion and approximately 10,000 stores.

Mr. Sasser said for now, store closings were not part of the plan.

“We are always looking at options,” he told analysts in a conference call. “We really are early on in looking at this.”

Family Dollar, headquartered in suburban Charlotte, N.C., and Dollar Tree each have between 50 and 60 stores in the Pittsburgh region, according to their websites.

After the merger, both brands will continue to operate under separate names and formats, Mr. Sasser said. Dollar Tree sells all of its merchandise for $1 or less, while Family Dollar has multiple prices, with most items under $10.

“The concepts are complementary,” Mr. Sasser said. “We plan to operate under both banners and grow both concepts.”

He said he expected some Dollar Tree stores would become Family Dollar stores and vice versa “to put the right banner in the right place.”

Dollar Tree projected the acquisition would produce some $300 million in annual cost savings after three years, mainly by giving the company more clout with suppliers.

The deal calls for Family Dollar shareholders, who must approve the transaction, to receive $59.60 in cash and $14.90 in Dollar Tree shares.

Family Dollar chairman and CEO Howard R. Levine is to remain with the company, reporting to Mr. Sasser, and take a seat on the board. Mr. Levine is the son of Family Dollar’s founder.

Patricia Sabatini: psabatini@ or 412-263-3066. First Published July 28, 2014 12:00 AM

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