Put up or shut up. That's essentially what Dollar Tree (NASDAQ:DLTR) just told Family Dollar (UNKNOWN:FDO.DL) when it said its rival needs to hold a Jan. 22 shareholder vote as scheduled or be in breach of the agreement and be liable for a $305 million breakup fee. Dollar Tree has simply run out of patience at being told to cool its heels.
Time to fish or cut bait
Dollar Tree in July offered to buy Family Dollar for $8.5 billion. The target company's management readily accepted the bid, only to see Dollar General (NYSE:DG) suddenly leap into the fray with a higher offer of $9.1 billion. Since then, Family Dollar has struggled to explain to shareholders why it rejected the competing bid out of hand and why investors should do the same.
Now Dollar Tree is forcing the issue. In a letter to Family Dollar's management, Dollar Tree said it appreciated all the hard work it has done to complete the deal, but CEO Bob Sasser said the company is not willing to wait any longer: "After two delays we have been more than reasonable but have reached the end of our patience."
In a letter released on Monday, Family Dollar pleaded with shareholders to accept the Dollar Tree deal because the Dollar General offer will encounter too many government antitrust objections to be approved. Even if the regulatory agencies sign off on the acquisition, the hurdles to completion would wipe out the value of the deal, according to management.
He who hesitates is lost
Family Dollar had originally scheduled a shareholder vote on Dollar Tree's offer for Dec. 11. However, as the Federal Trade Commission was scrutinizing the competing offers and both parties were supposed to submit additional materials by the first week of December, the dollar store chain postponed the vote to right before Christmas to give investors a chance to digest any new information.
But the Dec. 23 shareholder meeting was adjourned before a vote could be taken because there was not a majority present in favor of the deal. Family Dollar apparently wanted more time to twist arms in favor of Dollar Tree's offer, and so put off a vote once more.
For Dollar Tree in the new year, it is not as if Family Dollar's condition is getting any better, and the delays are increasing its costs even as the value of its merger offer increases because Dollar Tree's own stock keeps rising.
Pennies on the dollar
In its fiscal 2015 first-quarter earnings report, Family Dollar reported that despite a 2.3% increase in net sales, adjusted profit plunged 35% from last year.
Dollar Tree said in its letter to Family Dollar that it understood that Dollar General's intractable position hurt the dollar chain's business by creating a distraction just when the retailer should have been focusing on boosting Christmas sales. It was also causing employees unwilling to accept the job security risks associated with the competing offer to flee.
Family Dollar maintains that despite Dollar General publicly stating that no more than 1,500 stores would be closed following a buyout, its own talks with regulators and experience in these matters suggest that closer to 3,500 to 4,000 locations will actually need to be shut due to overlapping markets. On the other hand, accepting Dollar Tree's offer would require fewer than 500 stores to be closed.
A light at the end of the tunnel?
Family Dollar is getting desperate. Despite months of exhortation, management has not rounded up sufficient shareholder votes to get the deal done.
But just this week, leading proxy firm Institutional Shareholder Services came out in favor of shareholders accepting Dollar Tree's offer. It cited Family Dollar's store-closing estimate as a key factor in swaying its vote, saying investors would do well to accept the "bird in the hand.".
With its pleas becoming more incessant and plaintive, it's clear Family Dollar is worried it will fall short once more, but it can't delay any longer. Dollar Tree has its hand on the doorknob and is about to walk.
Good things might come to those who wait, and patience may be a virtue, but time is also money, and the time has come for Family Dollar to let its shareholders' voices be heard.
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