Dollar Tree has reached an agreement to acquire rival Family Dollar Stores in a deal that will create the largest operator of dollar stores in North America. The estimated $8.5 billion deal, a cash and stock transaction, is expected to close somewhere in 2015.
The deal will create a business with over 13,000 stores in 48 states as well as five provinces in Canada. The combined company has over $18 billion in annual sales and employs 145,000 people. Dollar Tree and Family Dollar will continue to operate as a separate banners once the agreement is completed. Dollar Tree stores sell goods at $1 or less while Family Dollar's price points exceed $1.
Bob Sasser, CEO of Dollar Tree, called the Family Dollar acquisition "a transformational opportunity" in a statement.
"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," said Mr. Sasser. "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 acquires a Family Dollar chain that is not at the top of its game. In April, Family Dollar announced plans to close 370 stores and lower prices on about 1,000 items after reporting a sales decline of 6.1 percent during the second quarter. More recently, activist investor Carl Icahn acquired a 9.4 percent stake in the company and began a push for its sale. Howard Levine, chairman and CEO of Family Dollar, will remain with the company after the deal is closed and will take a seat on the Dollar Tree board.
"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," said Mr. Sasser. "Combined, our growth potential is enhanced with improved opportunities to increase the productivity of the stores and to open more stores across multiple banners."
Dollar Tree reported a net sales increase of 7.2 percent for its first quarter ending May 4. Comparable-store sales were up 1.9 percent during the period. The company said it saw both an increase in traffic and its average ticket during the quarter.
Rival Dollar General, which operates 11,338 stores in 40 states, saw its overall sales grow nearly seven percent in the most recent quarter with comp sales up 1.5 percent. It also reported that traffic numbers and rings were up for the 25th straight quarter. Dollar General has increased its emphasis on category management, engaged in SKU optimization and made a greater commitment to private label goods to differentiate itself from Family Dollar and others. Rick Dreiling, chairman and CEO of Dollar General announced last month that he would be stepping down at the end of May 2015.
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