Dollar Tree buying Family Dollar for $8.5 billion

MATTHEWS, N.C. — (AP) Dollar Tree is buying rival discount store Family Dollar in a cash-and-stock deal valued at about $8.5 billion.

Stockholders of Family Dollar Stores will receive $59.60 in cash and the equivalent of $14.90 in shares of Dollar Tree for each share they own. The companies put the value of the transaction at $74.50 per share, which is an approximately 23 percent premium to Family Dollar's Friday closing price of $60.66.

Family Dollar stockholders will own somewhere between 12.7 percent and 15.1 percent of Dollar Tree's outstanding common shares at closing.

Core customers for bargain stores and major retailers like Wal-Mart have been among the hardest hit by the recession and its aftermath because of job instability.

Family Dollar has struggled and has attempted to reinvigorate sales by lowering prices on almost 1,000 basic items. It's cut some jobs and shuttered underperforming stores. The company had been conducting a strategic review since the winter, and investor Carl Icahn urged Family Dollar last month to put itself up for sale.

Dollar Tree CEO Bob Sasser said Monday that the deal will give Dollar Tree more than 13,000 stores in the U.S. and Canada. That is nearly three times as many stores as Wal-Mart Stores Inc., though Wal-Mart's square footage is still greater.

The combined Dollar Tree-Family Dollar chain will have sales of more than $18 billion and Sasser says that the transaction will create a more diverse company with an enhanced geographic reach.

Dollar Tree stores sell products for $1 or less, while Family Dollar's pricing is much broader.

Dollar Tree will continue to operate under the existing Dollar Tree, Deals, and Dollar Tree Canada store signs. It will keep the Family Dollar brand as well.

Family Dollar Chairman and CEO Howard Levine will still lead those stores and report to Sasser. He will join Dollar Tree's board.

Dollar Tree plans to finance the deal with available cash, bank debt and bonds.

The boards of both companies have unanimously approved the deal, which is expected to close by early next year. It still needs approval from Family Dollar shareholders.

"This is a transformational opportunity," stated Bob Sasser, Dollar Tree's Chief Executive Officer. "With the acquisition of Family Dollar Stores, Dollar Tree will become a leading discount retailer in North America, with over 13,000 stores in 48 states and five Canadian Provinces, sales of over $18 billion, and more than 145,000 associates on our team. We will continue to operate under the Dollar Tree, Deals, and Dollar Tree Canada brands, and when this transaction is complete, we will operate under the Family Dollar brand as well. Throughout our history, we have strived continuously to evolve and improve our business. This acquisition, which enhances our footprint and diversifies our company, will enable us to build on that progression, and importantly, positions Dollar Tree for accelerated growth. By offering both fixed-price and multi-price point formats and an even broader, more compelling merchandise assortment, we will be able to provide even greater value and choice to a wider array of customers.

Dollar Tree has a long record of consistent, profitable growth, strong financial performance, prudent capital management, and outstanding total shareholder returns. The acquisition of Family Dollar is consistent with our vision to be the leader in value retailing."

Sasser added, "This acquisition will extend our reach to lower-income customers and strengthen and diversify our store footprint. We plan to leverage best practices across both organizations to deliver significant synergies, while we accelerate and augment Family Dollar's recently introduced strategic initiatives. Combined, our growth potential is enhanced with improved opportunities to increase the productivity of the stores and to open more stores across multiple banners."

"I have long admired the Family Dollar brand and its key position in the minds of the consumer," said Sasser. "We are excited about the prospects for the combined company and the many opportunities that it will create for our associates, vendors, business partners, and shareholders. Howard Levine, CEO of Family Dollar, will remain with the company and report directly to me. Upon closing, Howard will become a member of the Dollar Tree Board of Directors. We are excited to welcome the Family Dollar team to Dollar Tree, and we look forward to working together to deliver increased value to the consumer and to our shareholders."

Howard R. Levine, Chairman and CEO of Family Dollar, commented: "For more than 54 years, Family Dollar has provided value and convenience to customers. Dollar Tree also has a rich history of providing great value to customers, and together, as one company, we can provide more customers with even greater value and convenience. Today's announcement represents the successful culmination of a comprehensive strategic review process that our Board of Directors, working with its financial and legal advisors, began this past winter. While this assessment of alternatives included consideration of a number of potential partners, we are pleased to conclude this process with the announcement of this compelling transaction with Dollar Tree, which our Board has unanimously determined to be in the best interests of our shareholders. This combination will enable Family Dollar to accelerate efforts to improve the business and will benefit our dedicated Team Members who will now be part of a larger, more diverse organization. I am excited about our future with Dollar Tree, and I look forward to working with the Dollar Tree team to complete the combination as quickly as possible to realize the compelling benefits for all our stakeholders."

Shares of Family Dollar Stores Inc., based in Charlotte, North Carolina, spiked 20 percent before the opening bell Monday. Shares of Dollar Tree Inc., based in Chesapeake, Virginia, are up almost 4 percent.

WSOC