Activist investor Carl Icahn stepped up his attack on Family Dollar’s board of directors Tuesday, while the board evaluates a $9.7 billion bid from Dollar General that threatens to upset the Matthews-based Family Dollar’s planned acquisition by another competitor.
Icahn criticized Family Dollar for not moving more aggressively sooner to combine with Dollar General and said the board has been too deferential to CEO Howard Levine.
Family Dollar’s 11-member board voted unanimously last month to sell the company to Dollar Tree, based in Chesapeake, Va., for $74.50 a share, made up of $59.60 cash and $14.90 worth of Dollar Tree stock. But on Monday, Tennessee-based Dollar General announced an all-cash offer of $78.50 a share, 5.4 percent higher than Dollar Tree.
Now it’s up to the board of directors – many of whom have long-term ties to Family Dollar, Charlotte and North Carolina – to decide between the two offers. Dollar Tree has said it will leave many of the company’s 1,400 jobs in Matthews and operate Family Dollar as a separate store brand. Levine would stay on with the combined company for at least two years and join Dollar Tree’s board.
Dollar General hasn’t said what might happen to the Family Dollar brand or its Matthews headquarters. Analysts, however, have speculated that the close similarity of Dollar General and Family Dollar’s business models would lead to massive cuts in Matthews.
Icahn had been pushing for a sale of Family Dollar since he announced in June that he owned 9.4 percent of the company. In a statement, he called the directors “a crony board” more concerned with ensuring Levine, son of founder Leon Levine, gets to keep a job than with getting the most money for shareholders.
“Could the fact that Family Dollar’s CEO, Howard Levine, has a future role in a Dollar Tree/Family Dollar merger have anything to do with it?” Icahn wrote. “How far will crony Boards go (and get away with it legally) to protect the CEO at the expense of shareholders?”
Icahn, who has since sold down his stake in Family Dollar to 3.6 percent, continued his blitz in a round of national media interviews Tuesday.
“Listen, (Levine’s) father started the company, and he thinks it’s his,” Icahn told Fox Business News. “But it isn’t, and he doesn’t know what he’s doing.”
A Family Dollar spokeswoman declined to address Icahn’s remarks. “We have no comment on Mr. Icahn’s opinions,” said Family Dollar vice president of investor relations Kiley Rawlins. She said no board members or executives were available for interviews, and several board members didn’t return calls.
But Levine, who is chairman of the board in addition to being CEO, defended the directors’ actions in an interview last month.
“Our board did what they were supposed to do,” Levine said. “The process our board went through started way before Carl got in the middle.”
Icahn, a longtime investor with an estimated $26 billion net worth, had pushed for a combination with Dollar General, not Dollar Tree. In securities filings, Family Dollar and Dollar Tree have said talks between Family Dollar and “Company A” – which appears to be Dollar General – fell apart because Company A didn’t want to deal with Icahn.
On Tuesday, Icahn disputed Family Dollar and Dollar Tree’s account.
“It annoys me that they’re using me now as sort of an excuse for them not doing something with Dollar General a long time ago,” Icahn said.
Family Dollar’s board will have to vote on whether to stick with Dollar Tree or go with Dollar General. Rawlins wouldn’t say when the board plans to meet. If the directors reject Dollar Tree, Family Dollar would owe a $305 million breakup fee, which Dollar General has said it would cover.
Either company could then come back with a higher bid, kicking off a possible bidding war. Analysts are divided over whether they expect that.
“Dollar Tree has already stretched its balance sheet in its offer,” said Brian Yarborough, an analyst with Edward Jones.
But if they were to come back with higher offers, the bidding could go to as high as $85 a share, analysts have said.
Shareholders will get the chance to vote on the offer chosen by the board. No shareholder meeting date has been set.
If the board rejects Dollar General and sticks with Dollar Tree, Dollar General could come back with a hostile takeover attempt and solicit shareholder votes to block the deal. Or shareholders could sue the company and the board of directors.
John Joseph, a business professor at Duke University, said board members will have to consider more than just the bottom line. Factors such as company culture, antitrust issues and which company is a better fit also come into play.
“Shareholder value is important, but that comes in many different flavors,” Joseph said.
Charles Elson, a professor at the University of Delaware who specializes in corporate governance, said the board’s decision should be simple, in theory.
“The key is to get the highest possible value for the shareholders,” Elson said. “Now, the way value is determined may be different.”
For example, since the Dollar Tree deal would give Family Dollar shareholders up to 15 percent of the combined company’s stock, the board could decide to stick with that deal and say it offers more value in the long term than an immediate all-cash buyout.
Elson said any loyalty to the CEO or concern about his role in the combined company is “probably more subtext than discussed.”
“In the end, it really can’t factor in,” Elson said. “That’s why you have golden parachutes.”