Family Dollar surprised many by rejecting Dollar General's merger offer based on the premise that the combination holds too much anti-trust risk.
The rejection came despite the fact that Dollar General's $9.0 billion all-cash proposal came in higher than the earlier $8.5 billion cash-stock deal from Dollar Tree.
Antitrust authorities are expected to explore whether any merger will lead to monopoly-like pricing leverage.
According to a New York Times analysis, Family Dollar believes regulators looking to approve the merger will focus their analysis on the dollar channel, where Dollar General is the leader and Family Dollar is second. Dollar General believes authorities will take a broader view, "looking at numerous other competitors that sell their product range, from Walmart to Walgreens."
In its statement, Family Dollar claimed Dollar General had canceled proposed meetings several times to discuss antitrust concern and CEO Howard Levine said Dollar General's proposal letter "contained blatant mischaracterizations and did nothing to address the antitrust issues in Dollar General's proposal."
Dollar General asserted Family Dollar didn't have all the relevant information.
"We have done extensive antitrust analysis using experienced advisers, the results of which confirm that the transaction as proposed is capable of being completed," said Rick Dreiling, Dollar General's chairman and CEO, in a statement. To resolve potential monopoly violations, Dollar General offered to sell 700 locations.
The Dollar General/Family Dollar combination would have nearly 20,000 stores in 46 states with over $28 billion in sales. The Dollar Tree combination promises over 13,000 stores in 48 states as well as five provinces in Canada, with sales over $18 billion. Dollar Tree's format — with all products under a buck — also differs somewhat from Family Dollar's.
Some reports felt the rejection was made because Mr. Levine planned to stay on in some capacity post-merger. Others felt the rejection was a ploy to get Dollar General to up its offer or add a guarantee it would pursue the deal regardless of what regulators demand.
Pointing to the recent mergers of Office Depot/OfficeMax and Men's Wearhouse/Jos. A Bank, The Wall Street Journal said the Federal Trade Commission has lately been more receptive to retail mergers by similar companies. The report noted that Amazon has changed the "competitive dynamic" but it also noted that dollar store shoppers tend not to shop online.
Indeed, some felt leverage could be gained depending on the geography. Scott Hemphill, a professor of antitrust law and intellectual property at Columbia Law School, told Marketplace Business, "If you are a customer in a part of the country that's close to Dollar General and close to Family Dollar, but not close to a Wal-Mart, then there's a real concern that the firms that they merged would be able to raise their prices."
How would you rate the antitrust concerns around a potential Dollar General/Family Dollar merger?