Family Dollar investor sues to block Dollar Tree takeover

A Family Dollar Stores Inc. shareholder contends that directors shortchanged investors in the discount chain by agreeing to an $8.5 billion takeover by rival Dollar Tree Inc. in a deal that the shareholder contends discourages other bidders.

Dollar Tree’s $74.50-a-share cash-and-stock offer for the 8,000-store chain undervalues Matthews-based Family Dollar and directors failed to properly shop around for the highest price, Shiva Stein, a Family Dollar investor, said in a suit filed Thursday in Delaware Chancery Court.

“The proposed transaction offers unfair and inadequate consideration that does not constitute a maximization of stockholder value,” Stein said. She’s seeking to block the deal or recover damages for herself and other investors if it goes through.

The suit appears to be the first shareholder challenge to the deal, which came after billionaire investors Carl Icahn and Nelson Peltz acquired major stakes in Family Dollar. Peltz made an unsolicited bid for the chain in 2011 in an unsuccessful attempt to attract other suitors.

A dozen law firms have said they are investigating the Dollar Tree deal and seeking to file lawsuits on behalf of shareholders. Such lawsuits are common after mergers and acquisitions are announced.

Family Dollar spokeswoman Bryn Winburn couldn’t be reached Friday to comment on the shareholder lawsuit.

Family Dollar CEO Howard Levine agreed to sell the company after years of struggling to compete with other discount chains, including Dollar Tree, Wal-Mart Stores Inc. and current dollar-store market leader, Dollar General Corp.

Stein contended in the complaint that analysts have said Family Dollar shares are worth as much as $79 apiece and that Dollar Tree’s offer provides only $59.60 in cash, along with stock to bring the final value of the bid to $74.50.

Family Dollar’s directors also wrongfully allowed Chesapeake, Va.-based Dollar Tree to structure the deal in a way to discourage other bidders and put in place a $305 million termination fee, Stein said in her suit.

The new Dollar Tree, which plans to keep operating separate chains, would have more than 13,000 locations across the U.S. and Canada, with 145,000 employees and $18 billion worth of revenue. Dollar General and Wal-Mart each have about 11,000 stores.

Levine told the Observer this week that selling the company to Dollar Tree is in the best interest of Family Dollar shareholders. “Our board did what they were supposed to do,” said Levine, pointing out that he is one of the company’s major shareholders.

In fact, since Icahn sold much of his stock this week, Levine is Family Dollar’s largest shareholder. His holdings are worth almost $700 million at Dollar Tree’s offer price of $74.50 a share.

Levine also stressed that the Dollar Tree deal was in the works before Icahn began demanding the company’s sale in June. He said Dollar Tree approached Family Dollar in March, and Family Dollar didn’t hint at any talks even as pressure for a sale mounted.

Levine also said he expects many of Family Dollar’s 1,400 corporate jobs to stay at the company’s Matthews headquarters following the acquisition’s closing. Dollar Tree CEO Bob Sasser will be chief executive of the company, while Levine stays on to run Family Dollar for at least two years. Observer staff writer Ely Portillo and researcher Maria David contributed.