A hedge fund on Friday said it was nominating seven directors to Family Dollar’s board in an effort to ensure the Matthews-based retailer does “everything in its power” to give rival Dollar General a chance to buy the company.
Family Dollar agreed in July to be acquired by Dollar Tree for $74.50 a share in cash and stock, or $8.5 billion. But rival Dollar General has since made a hostile $80-per-share offer totaling $9.1 billion that Family Dollar’s board has rejected.
In a letter sent to Family Dollar CEO Howard Levine, Elliott Advisors said it was concerned that some members of the current board may lack the expertise and independence to “successfully navigate and negotiate a value maximizing outcome for all shareholders.”
The hedge fund said its slate of directors has the experience to aid negotiations with Dollar Tree and Dollar General. Elliott said it owns 4.9 percent of Family Dollar’s outstanding shares.
In a statement, Family Dollar confirmed that it had received the letter and will review the notice in “due course.”
Elliott Advisors is the British arm of New York-based Elliott Management, which has $25 billion in assets under management. Led by billionaire founder Paul Singer, the hedge fund is known for being an activist investor, pushing for changes at companies such as data-storage giant EMC and oil company Hess.
A majority of Family Dollar’s 11-member board has strong North Carolina or Charlotte ties, including Queens University of Charlotte President Pamela Davies, N.C. Secretary of Commerce Sharon Decker, former N.C. Gov. Jim Martin and retired Family Dollar general counsel George Mahoney Jr.
In its letter, Elliott specifically called out Mahoney. The hedge fund said he was the wrong choice for a member of an independent committee created in January that explored the company’s alternatives.
“We ... question the decision to appoint George Mahoney Jr. to the committee given that he has been associated with Family Dollar, initially as an employee and subsequently as a member of the board, since 1976,” the hedge fund wrote. “More generally, Elliott believes that this committee is of limited value to shareholders as long as the remainder of the board lacks the relevant independence and/or expertise.”
Family Dollar has refused Dollar General’s advances because it says regulators would likely block a deal over concerns that the combined company would be anti-competitive and raise prices for consumers. Dollar Tree is offering less money, but Family Dollar says it will run into less opposition from federal regulators. Dollar General has said it will work with the Federal Trade Commission to gain approval for its bid.
In its letter, Elliott contends Dollar General has the ability to pay much more than $80 per share and urged Family Dollar to take the necessary steps to explore the possibility of a higher offer.
The hedge fund said Family Dollar’s bylaws required the hedge fund to nominate its slate by Saturday in order to seek their election at the company’s 2015 annual shareholder meeting. The proposed directors, which it called “The Value Maximizing Slate,” have no conflicts of interest with Family Dollar or its shareholders, the hedge fund said.
Family Dollar hasn’t set a date for its next annual meeting, which is traditionally held in January, and may not have one. The retailer has said it expects to complete its sale to Dollar Tree by the end of this year.
Earlier this year, activist investor Carl Icahn, who also pushed Family Dollar to merge with Dollar General, said the retailer had a “crony board.” Family Dollar’s directors, Icahn said, were more concerned with making sure Levine kept his job than with maximizing value for shareholders.
Elliott’s proposed directors include Fredric Reynolds, former chief financial officer of CBS; Jonathan Macey, corporate law professor at Yale Law School; and two Elliott portfolio managers.
In an earnings conference call last week, Levine, whose father, Leon Levine, founded Family Dollar in Charlotte in 1959, acknowledged that Family Dollar erred in recent years by trying to change its business model and shuffling key executives. Family Dollar’s lagging performance helped make the company a takeover target.