Monday, August 12, 2013

Family Dollar buyout speculation heats up again

Is Matthews-based Family Dollar, one of the area's Fortune 500 companies, an acquisition target again?

Speculation is swirling, 2 1/2 years after an activist shareholder first pushed to buy the company and take it private. Over the last few weeks, several analysts have offered their opinion on whether or not a sale is likely, with some saying that Family Dollar could be bought out by its larger rival Dollar

A deal for Dollar General buying Family Dollar would make "compelling strategic sense," said a Credit Suisse analyst last week.  Tennessee-based Dollar General could pay between $90 and $100 a share for Family Dollar, a significant premium to its $71.XX closing price on Friday. And a Citigroup analyst said last month that the chances of a Family Dollar buyout are 50-50.

Here's what's behind all the speculation:

  • An agreement Family Dollar had with shareholder Nelson Peltz, of Trian Fund Management, expired last month. Under the agreement, Peltz and Trian - who had previously pushed  to buy Family Dollar - agreed not to do anything further concerning the company in exchange for a board seat.
  • Potential leadership changes at Family Dollar. During a conference call with investors last month, CEO Howard Levine addressed the top management changes underway at the company, and said he's now looking towards succession planning.
  • As Bloomberg reported July 30, investor calls betting that the company's stock will rise hit an all time high, fueled by speculation that there could be an acquisition.
So what would it mean if Family Dollar were bought or merged with another company? For one, it would be the loss of the city's third Fortune 500 headquarters in the past several years, a blow to prestige. Harris Teeter, which is being acquired by Kroger Co., and Goodrich, bought by United Technologies Corp., are the other two.

It's all just speculation at this point, of course. Family Dollar hasn't indicated it's looking at strategic alternatives, and managers of the company say they remain committed to cutting costs and growing.

Also, the prices being talked about are much higher than in 2011, when Peltz proposed buying Family Dollar for $55 to $60. But a possible Family Dollar acquisition is something to keep an eye on over the next year.