Family Dollar fight part of a wave of U.S. merger activity
08/18/2014 8:20 PM
08/18/2014 8:34 PM
The battle for control of Family Dollar is part of a larger drama playing out across corporate America this year as merger and acquisition activity rises at a rapid pace.
Driving the deals are low interest rates to finance acquisitions and a strong stock market that’s pumping capital into companies. Also, by combining, companies are seizing the chance to cut costs and boost profits at a time when some are struggling to grow their revenues in a still-sluggish economy.
Family Dollar faces competing bids from Dollar Tree and Dollar General – raising questions about what happens to the 1,400 jobs at its Matthews headquarters. Charlotte-based Chiquita Brands, which is planning a merger with Irish produce company Fyffes, now faces a rival buyout offer from two Brazilian companies.
Last weekElectrolux, which has its North American headquarters in Charlotte, announced that it’s in talks to acquire General Electric’s appliance business.
The latest flurry comes months after Matthews-based grocer Harris Teeter was acquired by Cincinnati-based Kroger Co., a deal that ended local control of Charlotte’s top grocer by market share. And US Airways officially merged with American Airlines in December to become the world’s largest airline, with its second-biggest hub in Charlotte.
Brad Offerdahl, owner of Charlotte-based Viking Mergers & Acquisitions, said the boom in merger and acquisition activity extends from Fortune 500 companies to the much smaller firms his company advises.
“The activity level in the space that we operate in, which is the small end of mergers and acquisitions, is extremely active,” said Offerdahl, whose firm assists in the sale of companies with annual revenues of $5 million to $10 million to other companies and wealthy individuals.
Terms to borrow money to finance deals are very attractive at the moment, he said.
“When these people are borrowing at 4 or 5 percent – probably 4 percent – that’s cheap money,” he said.
Mark Vitner, senior economist in Charlotte for Wells Fargo Securities, said stock market gains are also driving recent deals. The Standard & Poor’s 500 index is up 6.7 percent for the year.
“You’ve had this buoyant stock market, so a lot of companies have a big pot of money that they can use to acquire other companies,” he said.
Companies are also looking at the benefits that come with combining, including enhanced purchasing power and efficiencies, as they grow frustrated with the pace of economic growth, Vitner said.
“A lot of companies have pulled out all the stops of cutting costs,” he said. “There’s just so much you can do to grow your business in an economy that is plugging along at a 2 percent pace.”
About $2.2 trillion in deals have been announced globally so far this year, according to Thomson Reuters data. That’s up roughly 70 percent from the same period last year.
Big U.S. deals announced this year include Winston-Salem-based Reynolds American’s proposed $25 billion acquisition of Greensboro-based Lorillard and Comcast Corp.’s proposed $45 billion acquisition of Time Warner Cable, Charlotte’s dominant cable provider.
Sometimes the deals fuel the debate over the “tax inversion” benefits a U.S. company can reap when it reincorporates abroad. Chiquita CEO Ed Lonergan said this month the company’s decision to merge with an Irish fruit company and base its headquarters in Dublin wasn’t motivated by tax savings.
Large deals can also come with antitrust concerns. On Monday, Dollar General said it has reviewed antitrust requirements and is ready to divest as many as 700 stores if needed to satisfy regulators.
HQ loss can be a blow
If Virginia-based Dollar Tree succeeds in its bid to acquire Family Dollar, Charlotte would lose a Fortune 500 headquarters, though both companies have said they expect to keep many of the corporate jobs in Matthews. Tennessee-based Dollar General didn’t say Monday what might happen to the Matthews jobs.
In a Chiquita-Fyffes merger, the headquarters would move to Dublin, but officials have said most of the 320 corporate jobs in Charlotte would remain. It’s unclear what impact a deal with the Brazilian companies would have on Chiquita employment in Charlotte, if that bid succeeds.
David Swenson, senior vice president of economic development services for the Charlotte Regional Partnership, said losing a corporate headquarters can deliver a blow to a region.
“There can definitely be concern when you talk about losing quality jobs and the prestige of having top corporate headquarters,” he said. “It can be very challenging for what we’re trying to do to retain companies and help existing companies grow when you lose headquarters.”
While there is always the potential that Charlotte would lose corporate headquarters from future mergers and acquisitions, the region will remain a strong location for company headquarters, he said.
“We may see (Charlotte) companies prosper by acquiring outside companies and moving them here,” he said.
Charlotte Chamber President Bob Morgan said: “We don’t get in the middle of deals that we’re not a part of. In mergers and acquisitions, there’s not a role for the Chamber of Commerce.”
He pointed to the pending Time Warner-Comcast deal. New York-based Time Warner Cable has about 2,500 employees at a corporate campus off Arrowood Road and at other locations, and has its name on the city’s uptown arena. A Time Warner Cable spokesman told the Observer in February that the acquisition would have “very little impact on the vast majority of employees.”
“Time Warner Cable is huge in Charlotte,” Morgan said. “Not a whole lot we can do, but we can say, ‘We’re here. Is there anything we can do?’ We try to let them know we’re here for them.”
Charlotte remains an attractive place for companies, he said, citing its airport, competitive cost of doing business and strong workforce.
It’s possible that Charlotte will lose businesses in the future, just as it will gain some, he said.
“It’s part of playing in the big leagues. We’re playing in the big leagues.”
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