Dollar Tree said Thursday it intends to close its pending merger with Matthews-based Family Dollar in early July, drawing the year-old takeover drama to a close and ushering in a new period of change.
The coming weeks and months will see hundreds of Family Dollar stores sold to new owners, and some others renamed as Dollar Tree stores. The combined company will also look at ways to make itself more efficient, which could include eliminating redundant functions at its two headquarters.
Dollar Tree, based in Chesapeake, Va., said in a first-quarter earnings report that federal regulators have “substantially completed” review of the Family Dollar stores the company will have to sell to gain approval of the deal. Dollar Tree said it plans to sell about 330 Family Dollar stores, representing approximately $45.5 million of operating income.
Dollar Tree said it expects an agreement with buyers of the stores to be made “in coming days,” and clearance from the Federal Trade Commission will follow.
“We’re as anxious to get this thing done as you can imagine,” Dollar Tree CEO Bob Sasser said in a call with analysts after the earnings release.
Dollar Tree had previously said it expected its $8.5 billion purchase of Family Dollar to close this month.
The FTC requires a certain number of stores to be sold to maintain marketplace competition. The combined Dollar Tree company will have about $20 billion in revenue and over 13,000 stores, making it the largest U.S. dollar store chain by store count.
After the deal’s close comes the complicated task of merging two companies with different business models: Family Dollar carries more national brands and items that cost a few dollars, while Dollar Tree sells everything for $1 or less.
Dollar Tree has said it will maintain Family Dollar’s headquarters and keep the chain’s name, though it’s unclear how employees in Family Dollar’s various corporate departments will be affected.
“We know there are many back office synergies and savings that we could have,” Sasser said, without elaborating. Analysts have said those could include human resources, accounting and finance.
Sasser outlined some initial steps the combined company will take to become more efficient, including converting some Family Dollar locations to Dollar Tree stores. Re-bannering stores, Sasser said, is “probably the biggest opportunity” the combined company has.
“These two companies fit incredibly well together. The opportunity is there to grow both banners (and) to put the right store in front of the right customer,” Sasser said.
He called the two companies “complementary:” Dollar Tree tends to perform better in more suburban markets, while Family Dollar does better in rural and urban markets and with low-income shoppers.
Once the deal is complete, Sasser said, Dollar Tree will re-banner a number of small test stores to verify its analysis is correct, then will modify the process if necessary. All of the initial re-banners, Sasser said, will be Family Dollars to Dollar Trees.
“Ultimately our strategy will be to have the banner in each market that best serves the customer of that market and provides the greatest return on investment,” Sasser said.
Sasser also said one of the first things the combined company will do is to streamline vendor relationships to get the best prices, which will be possible thanks to its larger scale and bigger merchandise orders.
“We already know there are huge synergies in exact items that we both sell that we can get lower costs on. One of us has lower costs than the other now,” Sasser said.
In discussing store expansion, Sasser said Dollar Tree will continue to open new Family Dollar stores, but at a reduced rate. Family Dollar management has said it sees potential for 12,000 Family Dollar stores in the U.S., up from about 8,000, and that’s “probably right,” Sasser said.
Beyond that, Sasser said, “Family Dollar would be terrific in Canada,” though the focus for now remains integrating the two companies.
Dollar Tree earnings fall short of estimates
In the first quarter of this year, Dollar Tree said it spent $10.4 million in acquisition-related costs associated with its proposed merger with Family Dollar. Excluding those costs, Dollar Tree also reported earnings and sales that missed Wall Street expectations because of West Coast port disruptions, which snarled up distribution and increased transportation costs from the West Coast.
For the quarter that ended May 2, Dollar Tree reported earnings of 71 cents a share, falling short of the 74 cents a share that Bloomberg-surveyed analysts predicted. In the first quarter last year, Dollar Tree’s earnings were 67 cents a share.
The company reported sales of $2.18 billion, below analysts’ estimate of $2.2 billion but up from $2 billion in the first quarter of 2014.
Family Dollar shareholders approved the sale of the company to Dollar Tree in January. Katherine Peralta