Adviser switches Family Dollar recommendation to vote ‘yes’ on Dollar Tree plans

Family Dollar’s plans to be acquired by Dollar Tree got a boost Wednesday, as an influential advisory firm switched its recommendation and advised shareholders to vote for the deal.

Matthews-based Family Dollar is trying to complete the Dollar Tree deal and fend off a hostile, $9.1 billion bid from Dollar General, which is also trying to acquire the company. Shareholders are set to vote on the Dollar Tree deal Jan. 22.

In a note to investors Wednesday, Institutional Shareholder Services advised them to vote for the $8.5 billion Dollar Tree offer. ISS advises shareholders how they should vote on corporate issues, such as executive pay, mergers and acquisitions. Its recommendations typically carry weight with large institutional investors, who hold big chunks of a company’s stock and can sway a vote one way or the other.

ISS had previously recommended shareholders delay the final vote on the Dollar Tree deal, which had been scheduled for December, so they could learn more about the competing bid from Dollar General. Shareholders voted to adjourn the December meeting and delay the vote.

On Monday, Family Dollar released a letter from Dollar Tree CEO Bob Sasser warning that the retailer is at “the end of our patience.” Dollar Tree will withdraw its offer and seek to collect a $305 million breakup fee from Family Dollar if the retailer delays the vote again.

So why don’t shareholders just spurn Dollar Tree and take Dollar General’s higher bid? While the Dollar Tree deal is likely to gain easy regulatory approval from the Federal Trade Commission, Family Dollar has long argued that Dollar General would face higher antitrust scrutiny and be forced to sell up to 4,000 stores to complete the deal. That’s because Dollar General and Family Dollar have more similar business models and more overlapping locations.

ISS said Family Dollar shareholders run the risk of running off Dollar Tree in favor of a Dollar General deal that could ultimately fall through.

“There is some risk – and potentially significant risk – of losing the bird in hand entirely if Family Dollar unilaterally adjourns its meeting to again allow Dollar General additional time for its regulatory review,” the advisory service wrote.

Dollar General hasn’t raised its offer price or committed to sell as many stores as the FTC requires in order to close a deal, ISS said, and hasn’t given investors any new information about its discussions with antitrust regulators.

“Dollar General’s near-silence on regulatory progress – particularly its failure to meaningfully follow through on its own unforced commitment to provide a meaningful update in December – speaks volumes,” ISS said.

Family Dollar executives were pleased with the announcement.

“We are pleased that ISS recognizes the substantial and certain value the Dollar Tree merger provides Family Dollar’s stockholders, and acknowledges that Dollar General’s conditional proposal presents significant risks to Family Dollar stockholders,” Family Dollar CEO Howard Levine said in a statement.

Dollar General did not immediately respond.

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