Sun Sentinel Palm Beach Edition
Chain adopts ‘poison pill’ as Icahn closes in
Family Dollar Stores adopted a “poison pill” to buy time for considering any possible deal that activist investor Carl Icahn could push for after becoming its largest shareholder.
Family Dollar’s move “puts a damper” on prospects for a “friendly dialogue” with company’s executives, Icahn said Monday.
Icahn reported a 9.39 percent stake in Family Dollar on Friday and said he was considering pushing the $6.89 billion company to merge with rival Dollar General.
“How does it possibly matter if I own 10 percent or 15 percent of a company? All it does is it makes it more difficult to have a friendly dialogue, which we already are planning to have,” Icahn said Monday.
Family Dollar adopted a one-year shareholder rights plan, commonly knownas a poison pill, with a trigger of one person buying 10 percent of the company’s stock.
“Poison pills” deter hostile takeovers by triggering the issue of new shares, diluting holdings of investors who exceed a set threshold.
Family Dollar’s shares rose more than 13 percent to close at $68.62 on the NewYork Stock Exchange.
Dollar General’s shares rose more than 7 percent to close at $62.25.
Jefferies raised its ratings on the stock of both companies to “buy,” based on a merger and synergies of as much as $1.2 billion.
“We think Dollar General could be a motivated buyer given where we are in the life cycle of this dollar-store industry and potential increased competition in small formats coming from Wal-Mart,” analyst Daniel Binder wrote in a note.
Dollar General, with a market value of $17.59 billion, has been struggling to shore up profit margins after it slashed prices to keep its lower-income shoppers from shifting to Wal-Mart Stores and Target.
Family Dollar, struggling with falling sales, said in April that it would close 370 stores, slow expansion of new stores and slash prices.
Sterne Agee & Leach analysts ruled out a merger and said taking Family Dollar private might be a better option.
“Dollar General took a hard look at Family Dollar in 2013 and passed on the acquisition. Since that time … the company has gone out of its way to suggest … that purchasing Family Dollar is not part of its strategic focus in the near term.”
Dollar General CEO Rick Dreiling prefers organic growth over acquisitions, and buying Family Dollar would be expensive, Raymond James said.
Family Dollar trades at 17.8 times earnings, according to Thomson Reuters StarMine. That compares with Dollar General’s 15.6 times and an industry median of 15.1 times, Thomson Reuters reported