A Dollar here, a Dollar there

August 21, 2014

Things are a little crazy in the dollar store M&A world. Back in June, Dollar General (from here, General) thought about trying to buy its rival, Family Dollar (from here, Family). For various reasons, this didn’t happen. Instead, Dollar General’s other rival, Dollar Tree (from here, Tree), submitted a bid to buy Family for $8.5 billion several days after the meetings with General. Family accepted this, even though General came back with a $9.7 billion cash offer.

“Aside from offering all cash and a bigger, 29 percent premium to Family’s undisturbed share price, General may be a better fit with Family as both companies offer goods at various prices whereas Tree sticks with items that actually sell for $1 or less,” writes Kevin Allison. And yet.

The official story is that Family’s board rejected General’s better offer because of antitrust concerns. But General isn’t too sure. In a letter dated yesterday, General says that the two companies chatted in June, General floated a tentative price, and Family seemed interested. According to the letter, “at no time during this meeting did [Family CEO Howard] Levine indicate that there was a process, that there was any urgency to act or that there were discussions with another potential buyer.” But just a few days later, Family started exclusive negotiations with Tree. According to the letter, this may have been because Levine wanted to continue to be CEO of the combined company — an offer than Tree left on the table but General did not.

That’s Carl Icahn’s theory, too. While all of this was going on (but before it was public), the activist investor announced he had a 9.4 percent stake in Family. Icahn started pushing for Family to sell itself before it came out that that was in fact what Family was trying to do. As a shareholder, though, Icahn would have preferred Family to take the larger offer from General. “At too many companies in America the hubris of the CEO, supported by a crony Board, costs shareholders billions of dollars,” he wrote in a blog post about the fiasco earlier this week. And it looks like he might be right about that. “Carl Icahn’s theory… is starting to look more credible,” writes Matt Levine.  — Shane Ferro

On to today’s links:

Must Read
“The payment of ransoms and abduction of foreigners must emerge from the shadows. It must be publicly debated” – David Rohde

Charts
America’s racial divide: Unemployment – NYT

Inflation
Junior bankers get a raise! – Dealbreaker

Crime And/Or Punishment
BofA settles another mortgage investigation, this time for $16.65 billion – Reuters
Most of the BofA settlement is tax deductible – David Dayen
Wall Street should be thrilled with the government’s billion-dollar settlements – Dean Starkmen

Descriptors
“The hedge fund structure, a fee schedule masquerading as an asset class” – Dan McCrum

Central Banking
A semi-regular reminder on the value of the Fed giving money to people – Foreign Policy

True
A six-figure salary still means you’re rich – Dylan Matthews

Strangely Honest
“The cost to defeat ISIL would be very high and would require a multi-year commitment” – Brian Fishman

Ugh
“Despite Ferguson’s relative poverty, fines and court fees comprise the second largest source of revenue for the city” – Alex Tabarrok

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