Family Dollar stock (NYSE: FDO) was up more than 22% in morning trading today (Monday) and Dollar Tree stock (Nasdaq: DLTR) 6% after the latter announced a deal to buy its struggling rival for $8.5 billion in cash and stock.
The boards of both companies have unanimously approved the merger. The deal is worth $74.50 a share to Family Dollar shareholders. FDO investors will receive $59.60 in cash and $14.90 in equivalent Dollar Tree shares.
Dollar stores have struggled of late due to an anemic U.S. economy and growing competition from large discount chains such as Wal-Mart Stores Inc. (NYSE: WMT), which are increasingly going after penny-pinching consumers by stocking more and more items priced at $1 or less.
Family Dollar has been sputtering along over the last several months, attempting to attract customers and boost sales. After announcing ambitious expansion plans in 2013, which included tripling its store presence, Family Dollar curtailed those expansion efforts in April.
Instead, FDO announced it would actually close about 370 stores after a dismal second quarter.
In June, billionaire investor Carl Icahn, with a 9.4% stake in Family Dollar, pressured Family Dollar Chief Executive Officer Howard Levine to sell the company and replace some board members.
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FDO, DLTR CEOs Weigh InThe combined company will have some 13,000 stores and more than $18 billion in sales.
In a press release, Dollar Tree CEO Bob Sasser called the deal a "transformational opportunity."
"This acquisition will extend our reach to lower-income customers and strengthen and diversify our store footprint," he said.
Levine said the acquisition "represents the successful culmination of a comprehensive strategic review process," his board began this past winter. "This combination will enable Family Dollar to accelerate efforts to improve the business."
Levine will report to Sasser and FDO will continue to operate under the Family Dollar name.
In a nod that investors on both sides like the deal, shares of Charlotte, N.C.-based Family Dollar surged nearly 23% to $74.43 right after the open. Shares of Dollar Tree Inc., based in Chesapeake, Va., spiked nearly 9% to $59.09. Those gains pulled back a little but were still strong by 10 a.m.
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- Wall Street Journal: Dollar Tree Buys Family Dollar
The post Family Dollar Stock (NYSE: FDO) Up 22%, Dollar Tree Stock (Nasdaq: DLTR) 6% on Deal appeared first on Money Morning - Only the News You Can Profit From.
