Proxy adviser ISS recommended Family Dollar accept the $8.5 billion bid from Dollar Tree to buy it over the $9.1 billion offered by Dollar General, as reported by the Wall Street Journal. The main issue is regulatory headaches that might ensue from a merger with Dollar General and Family Dollar. Since the business models and merchandise of both operations are similar–they sell items at very low prices–regulators may insist they close down stores to eliminate unfair competition. Dollar General has proposed closing 1, 500 stores while Family Dollar might have to shutter up to 4, 000 if the two companies combine.
Meanwhile, Family Dollar canceled a meeting for December 23rd and rescheduled it for January 22 to vote on the issue. ISS says that Dollar General’s silence on regulatory issues “speaks volumes.” Dollar Tree CEO Bob Sasser says he won’t accept any further delays from Family Dollar, and there is concern that if Family Dollar drags its feet, Dollar Tree could withdraw its bid.
Dollar Tree only has to close 300 stores if there is a merger, because all of its items sell for one dollar, a slightly different model that of Dollar General and Family Dollar. ISS also pointed out flaws with Family Dollar’s strategy in emphasizing every day low prices over promotions, and thinks a hook up with Dollar Tree is a good idea.