Last Updated on 09/01/2020 by GS Staff
Yes, Dollar Tree owns Family Dollar. Dollar Tree acquired Family Dollar in July 2015. Shareholders of Family Dollar received $59.60 in cash and 0.2484 of a share of Dollar Tree common stock for every share of Family Dollar owned.
The Bidding War
Dollar Tree was in a bidding war with Dollar General to acquire Family Dollar in 2015. Dollar Tree initially made an $8.5 billion bid for Family Dollar that consisted of cash and Dollar Tree stock. Shortly after Dollar Tree’s bid, Dollar General offered $8.95 billion before sweetening the deal to $9.1 billion when concerns with antitrust issues were brought forward. Despite the higher bid by Dollar General, Family Dollar shareholders overwhelmingly voted to accept the Dollar Tree offer.
Family Dollar accepted the lower bid partly because of uncertainty with the willingness of the Feder Trade Commission (FTC) to approve the merger with Dollar General. The Chairman and CEO of Family Dollar, Howard R. Levine stated the following regarding the risk of accepting a merger with Dollar General,
There is a very real and material risk that the transaction proposed by Dollar General would fail to close, after a lengthy and disruptive review process. Accordingly, our board has rejected Dollar General’s revised proposal and reaffirmed its support of the transaction with Dollar Tree, which delivers attractive value in the form of immediate upfront cash and upside participation in a combined Dollar Tree-Family Dollar entity, as well as closing certainty.
Family Dollar cited up to 4,000 potentially problematic stores that may need to be divested to meet approval by the government for the Dollar General deal to possibly be approved. Contrast this with a Dollar Tree merger where it was estimated that only 300 stores would need to be divested. This alone was likely enough compelling evidence to convince shareholders to approve the Family Dollar/Dollar Tree deal.
What the Merger Created
At the time of the merger, the combined companies of Dollar Tree and Family Dollar had about 13,000 stores in 48 states with a handful of stores in Canada. Sales were approximately $19 billion annually. As of 2019, Dollar Tree (including all Family Dollar stores) had 15,288 stores and approximate annual sales of $23.6 billion.
Keep in mind that the merchandise at Dollar Tree is all priced at $1.00 per item. Family Dollar sells basic necessities and seasonal merchandise for typically $10.00 or less. While it would have been efficient to rename all Family Dollar stores “Dollar Tree”, the different price-points of products sold at each store prevented this from happening (if ever intended). Unless the pricing strategies of either Dollar Tree or Family Dollar changes, expect there still to be both Dollar Tree and Family Dollar stores that sell products at different price points
Struggles and Moving Forward
Dollar Tree has had challenges growing Family Dollar since it acquired the retailer. The company is working to address the growth concerns by doing the following according to the 2019 annual report:
- Implement a new model for new and renovated stores
- Re-bannering some stores to Dollar Tree
- Closing underperforming Family Dollar stores
- Adult beverage installation
- More coolers and freezers in certain stores
The above seems to address at least some of the problems that analysts have cited as being problematic for the growth of Family Dollar. As stated in a November 5, 2018, Wall Street Journal article,
Family Dollar’s sales have been sputtering, pulled down by neglected stores, poor product selection and unhappy workers, according to analysts. The problems stretch back to before Dollar Tree bought the business. But executives had hoped to be further along in solving them, say people familiar with the company, and now the stores are dragging on Dollar Tree’s sales and stock price.
The following table reflects the struggles Family Dollar has had with growth when looking at operating results over a recent three years period:
| Year Ended | |||
| February 1, 2020 | February 1, 2019 | February 3, 2018 | |
| (in millions) | $ | $ | $ |
| Net Sales | $11,102.9 | $11,111.2 | $11,081.1 |
| Gross Profit | 2,697.8 | 2,810.0 | 3,023.4 |
| Operating Income (loss) | (81.0) | (2,320.0) | 630.0 |
It will be interesting to see if Dollar Tree is able to fix the problems with Family Dollar in the coming years to where their 2015 acquisition starts to noticeably pay off. Stay tuned!
Sources:
https://consumerist.com/2015/01/12/family-dollar-urges-shareholders-to-take-dollar-tree-deal-call-proposal-a-virtual-certainty/index.html
https://csnews.com/family-dollar-turns-down-dollar-generals-revised-bid
https://consumerist.com/2015/01/22/dollar-tree-crowned-victor-in-battle-for-family-dollar/
https://www.wsj.com/articles/dollar-trees-9-billion-problem-family-dollar-isnt-paying-off-1541419201#:~:text=Family%20Dollar’s%20sales%20have%20been,Dollar%20Tree%20bought%20the%20business.
Dollar Tree Image – Michael Barera
Family Dollar Image – Michael Rivera
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