Icahn demands Family Dollar be put up for sale immediately

Carl Icahn, billionaire investor and chairman of Icahn Enterprises Holdings LP
Carl Icahn, billionaire investor and chairman of Icahn Enterprises Holdings LP BLOOMBERG

Activist investor Carl Icahn said Thursday that he wants to see Family Dollar sold at once, and he told the Matthews-based retailer that he’s prepared to seek shareholder support to fire the entire board of directors if he doesn’t get his way.

Icahn said in a letter to Family Dollar chief executive Howard Levine that he wants three seats on the board of directors, which would comprise a new committee tasked with exploring a sale of the company.

The letter said Icahn discussed Family Dollar over dinner with Levine on Wednesday night. The two didn’t come to any agreement.

“Although we appreciated the cordial nature of our discussion at last night’s dinner, it was apparent that we have a strong difference of opinion as to the future of our company,” Icahn wrote.

If Family Dollar resists his push to sell, Icahn said he will go directly to shareholders and get their support to remove the whole 11-member board and replace them with a new board with “a shareholder mandate to sell the company.”

Icahn said such a step would be “a last resort” but made clear his preference for the company’s future.

“It is imperative that Family Dollar be put up for sale immediately,” Icahn wrote, in a sentence that was bold and underlined. “We believe there would be significant interest from strategic and financial buyers who could recognize massive synergies from an acquisition of the company.”

He disclosed a 9.4 percent stake in the company earlier this month, making him the largest shareholder.

Analysts have said Dollar General, Wal-Mart or private equity firms could be likely buyers.

Family Dollar is one of the Charlotte region’s most prominent homegrown companies, with more than 1,400 people working at its headquarters on Monroe Road. The company has 8,100 stores, making it the nation’s second-largest dollar store retailer.

Although Family Dollar has grown rapidly, the company has lagged rivals in sales and profit growth. This year has been especially turbulent, with an executive shake-up that saw the company’s president depart unexpectedly, layoffs in Matthews and plans to close 370 underperforming stores.

“Family Dollar has consistently underperformed its peers on most, if not all, operating metrics ... We believe the company has been in limbo for far too long,” Icahn wrote.

Family Dollar’s stock jumped almost 3 percent in aftermarket trading Thursday, when Icahn’s letter was published. The company’s stock was trading at nearly $70 a share, up 15 percent since Icahn first disclosed his interest.

Although Dollar General has been touted by many analysts as the most likely merger partner for Family Dollar, some were skeptical. The Tennessee-based company operates more than 11,000 stores.

Barry Lyss of Makor Capital wrote in a note to clients Thursday that the cost savings needed to make a Dollar General-Family Dollar combination worthwhile would be difficult to achieve. “The probabilities of a deal (with Dollar General) are on the low side,” he wrote.

Outsider vs. founder’s son

Icahn is a longtime corporate fighter, with a history of buying out or pushing for major changes at companies ranging from airline TWA to Apple to Clorox.

Levine, son of company founder Leon Levine, remains the company’s second-largest shareholder, with about 8.2 percent of shares outstanding. At Thursday’s aftermarket price of nearly $70 a share, his stake in the company is worth more than $650 million.

Under Levine’s leadership, Family Dollar fended off an unsolicited buyout by activist investor Nelson Peltz in 2011.

After Icahn disclosed his holdings and said he planned to push for changes, Family Dollar’s board of directors enacted a “ poison pill” provision designed to keep Icahn or any other shareholder from acquiring a controlling stake in the company without permission. Levine, chairman of the board, voted in favor of the proposal.

But a significant chunk of the company’s shares are now controlled by Icahn and two other activist investors likely to support change. Along with Icahn, Peltz and John Paulson’s hedge fund control about 22 percent of Family Dollar’s outstanding shares.

While Peltz didn’t succeed in his buyout attempt, he won a seat on Family Dollar’s board for Ed Garden, one of his business partners. Garden was the only director to vote against Family Dollar’s poison pill in early June.

In a statement Thursday evening, Family Dollar executives said they were still open to working with Icahn after meeting him but gave no indication they were considering acceding to his demands.

“As we expressed in the meeting, we are always open to constructively communicating with our shareholders with the shared goal of enhancing value,” the company wrote. Family Dollar intends to press ahead with its standalone plans.

“We continue to take immediate, strategic actions as appropriate to improve our performance. We are confident that these steps will position Family Dollar to deliver stronger returns for our shareholders,” the company wrote.

Board under pressure

Icahn’s move Thursday ratchets up the pressure not just on Levine, but on Family Dollar’s board of directors, which is now in the investor’s crosshairs.

The 11-member board of directors has a heavy North Carolina and Charlotte presence, with a majority of local directors.

In addition to Levine, the board includes Mark Bernstein, a former partner in the Parker Poe law firm; Queens University of Charlotte President Pamela Davies; N.C. Secretary of Commerce Sharon Decker; former Bank of America executive Edward Dolby and former N.C. Gov. Jim Martin. Also on the board: former Lowe’s executive Dale Pond, former Family Dollar general counsel George Mahoney and Glenn Eisenberg, chief financial officer of North Carolina-based Laboratory Corp.

The only directors without strong local ties are Garden and Harvey Morgan, retired managing director of New York-based Bentley Associates.

Thursday, Icahn said he still prefers to work with the company – but that he doesn’t intend to wait.

“We don’t believe there is any time to waste,” wrote Icahn.

Staff writer Linly Lin contributed.

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