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Carl Icahn takes 9.4 percent stake in Family Dollar

  • http://media.charlotteobserver.com/smedia/2014/06/06/18/14/w5BW.Em.138.jpeg|215
    Henny Ray Abrams - AP
    Financier Carl Icahn in 2010
  • http://media.charlotteobserver.com/smedia/2014/06/06/17/50/1u8YGt.Em.138.jpeg|131
    From Twitter - Twitter
    Carl Icahn’s tweet about Family Dollar

Prominent investor Carl Icahn said Friday that he has bought 9.4 percent of Matthews-based Family Dollar and plans to push for major changes at the company – which could mean a sale of the discount retailer.

Icahn’s move follows several tough quarters for Family Dollar, one of Charlotte’s most prominent homegrown companies. The retailer has attributed its falling sales largely to the tough economy and pressure on its low-income core customers. But its chief rival, Tennessee-based Dollar General, has been growing its sales and profits.

In a securities filing, Icahn said he thinks Family Dollar’s shares are undervalued. He plans to look into operational changes, attempt to meet with management, possibly seek a seat on the board of directors, or “explore strategic alternatives,” which typically means a sale, merger or leveraged buyout of a company.

In a statement late Friday, Family Dollar’s board of directors and management said they are “open to dialogue with all shareholders and welcome input toward the shared goal of enhancing value.” The company said it is already taking steps to increase efficiency and improve financial results.

Icahn tweeted about his Family Dollar stake: “Hope to continue our streak of value enhancement.”

Icahn controls 10.7 million shares, with an aggregate purchase price of $266 million, the securities filing shows. He started purchasing the stock in early April, days before the company reported falling profits and announced it would close stores. He continued buying large blocks of stock through Friday.

The 78-year-old Icahn – an activist investor to some, corporate raider to others – has a Forbes-estimated net worth of $24 billion. He has long been an investment street fighter, from his hostile takeover of airline TWA in the 1980s to more recent public fights with Apple, William Ackman over Herbalife and Michael Dell over his eponymous computer company.

His Twitter bio reads, in part: “Some people get rich studying artificial intelligence. Me, I make money studying natural stupidity.”

Multiple news organizations have reported that the FBI is investigating Icahn and golfer Phil Mickelson over insider trading allegations. Neither has been accused of wrongdoing. The investigation involves trading in Clorox shortly before Icahn announced he had accumulated a stake in the company.

Family Dollar operates more than 8,000 stores in 46 states. Founder Leon Levine and his foundation are among the city’s best-known philanthropists.

This is the second time Family Dollar has faced a challenge from an outside investor. In 2011, Nelson Peltz made an unsolicited bid to buy the retailer, which Family Dollar ultimately rejected. One of Peltz’s associates won a seat on the board of directors, however.

Dollar General has already been through a buyout. Giant private equity firm Kohlberg Kravis Roberts bought Dollar General in 2007 and took the company private in a $7.3 billion deal.

KKR trimmed and revamped the company, before taking it public again in 2009 and making a large profit as the stock rose steadily in the coming years.

In January, Family Dollar said its profits were down, and company President Michael Bloom left abruptly.

“We weren’t happy with our financial results,” CEO Howard Levine, son of the founder, said at the time. Levine also said that he and Bloom disagreed on merchandising strategies, and that frequent heavy promotions were hurting the company.

The bad news continued in April, when Family Dollar reported that sales and profits were down.

“Clearly, these results did not meet our expectations,” Levine said then. Family Dollar said it would slash prices on 1,000 items to lure shoppers back, and the company decided to close hundreds of stores. Family Dollar also cut 135 jobs at its Matthews headquarters, where the company said about 2,400 people work.

For the past six months, Family Dollar’s stock has fallen more than 8 percent, to close at $60.53 a share on Friday. But news of Icahn’s purchase sent the stock soaring 10 percent in after-market trading. Staff writer Deon Roberts contributed.

Portillo: 704-358-5041; Twitter: @ESPortillo
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