Shareholders of Family Dollar Stores Inc. (FDO) have voted in favor of merger with Dollar Tree, Inc. (DLTR) in spite of Dollar General Corporation’s (DG) higher offer. This puts an end to a highly contested struggle in the dollar store space.  

At a special meeting held for Family Dollar’s shareholders on Jan 22, 2015, a preliminary count revealed that an overwhelming majority of shareholders — 84 million out of 114 million — have decided to stick with Dollar Tree as it has higher chances of passing the antitrust concerns.

Though the deal still awaits a regulatory approval, Family Dollar is confident of closing the transaction by Mar 2015.

Prima facie, Dollar General’s $9.1 billion offer was undoubtedly better than Dollar Tree’s $8.5 billion bid but comparatively lesser chances of obtaining regulatory approval worked against the former.

As a result, Family Dollar, which has been struggling with its performance, was trying all means to convince its shareholders to favor the Dollar Tree transaction. The vote on the bid was already postponed twice.

Also, Family Dollar, in a letter to its shareholders prior to the special meeting, highlighted the reviews of Federal Trade Commission (“FTC”). The company stated that accepting Dollar General’s proposal would involve divestment of 3,500 to 4,500 stores, but a deal with Dollar Tree would require divestiture of about 310 stores. The company also informed that Dollar Tree has found potential buyers for the stores to be offloaded.

Family Dollar-Dollar Tree union will result in the formation of a giant that will single-handedly counter competition from retail bellwethers like Wal-Mart Stores Inc. (WMT) in the dollar-discount store segment.

The combined chain, with an ability to generate sales of over $18 billion, will be in a better position to reach out to more value-seeking consumers through its vast network of more than 13,000 stores spanning 48 states and five Canadian Provinces. The buyout, along with helping Dollar Tree to emerge as a leading discount retailer in North America will also assist in providing products at a fixed price ($1 or less) under its banner and multi-price point under Family Dollar.

Dollar Tree anticipates savings of $300 million in annual costs by the end of the third year, after the deal is closed. Post-acquisition, the companies will be able to tap new markets, enhance market share in existing ones, extend the sales channel and generate significant free cash flow to increase store count and repay debt.

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FAMILY DOLLAR (FDO): Free Stock Analysis Report
 
WAL-MART STORES (WMT): Free Stock Analysis Report
 
DOLLAR TREE INC (DLTR): Free Stock Analysis Report
 
DOLLAR GENERAL (DG): Free Stock Analysis Report
 
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