Next for Family Dollar: Completing the deal

Months of uncertainty about the fate of Matthews-based Family Dollar ended in the span of 20 minutes Thursday, with shareholders voting to approve a sale to rival Dollar Tree.

Executives said both companies will maintain their own headquarters, and the Family Dollar name will live on as a Dollar Tree subsidiary. But it’s still not clear how many of Family Dollar’s 1,300 Matthews employees will lose their jobs, and how many stores will shutter following the deal’s official close, which could come as early as March.

The $8.5 billion sale to Dollar Tree, backed by Family Dollar’s board, caps a takeover drama that featured a hostile $9.1 billion bid from Tennessee-based Dollar General. The Dollar Tree deal passed Thursday with support from about 74 percent of Family Dollar’s shares.

“Today is a great day,” Family Dollar CEO Howard Levine said after the vote. “It was painful getting here, but I always believed we were in a strong position.”

The sale marks the end of local control of a business that Levine’s father, Leon Levine, started in 1959 when he was 22. He opened the first Family Dollar on Central Avenue with a $6,000 loan, and scouted new locations by spying fresh oil spots on the pavement left by motorists on tight budgets. The Levines are among the Charlotte region’s most prominent philanthropists, having donated tens of millions of dollars to Charlotte-area arts, education and medical causes.

Howard Levine said the two companies are still working out how they’ll be structured. But “in the foreseeable future, both headquarters will be maintained,” he said. Because Dollar Tree’s business model differs from Family Dollar’s, the companies will have separate store operations and merchandising teams, which Levine said are the largest employee groups.

Under the deal, Levine will remain at Family Dollar’s helm for at least two years and join Dollar Tree’s board. Dollar Tree CEO Bob Sasser will lead the combined company.

Next, the two discount retailers must gain antitrust approval from the Federal Trade Commission. The FTC likely will require them to sell some overlapping stores, but the companies expect fewer than 300 out of a combined 13,000 locations to close. Dollar Tree, based in Chesapeake, Va., anticipates an agreement with the FTC about store divestitures by the end of this month.

Dollar General had offered a higher bid than Dollar Tree, but the company ran into delays getting FTC approval, and Levine and Dollar Tree argued to shareholders that the company would never be able to close the deal.

After Thursday’s vote, Dollar General CEO Rick Dreiling fired back. “Today’s vote is a loss not only for Family Dollar shareholders, but also for consumers across the country who will not have the opportunity to benefit from the cost savings and efficiencies that we believe would have been created by a merger between Dollar General and Family Dollar,” he said in a statement.

‘Important closure’

Former North Carolina Commerce Secretary Sharon Decker, who sits on Family Dollar’s board, said the deal means “good things for North Carolina” and for area jobs.

“Today brings important closure for the employees because they know what’s going to happen, and that’s really important,” Decker said.

Brian Yarbrough, an analyst at Edward Jones, says the Dollar Tree deal overall is better for employees than a Dollar General takeover would have been. That’s because Dollar General has a business model virtually identical to Family Dollar’s, selling a variety of items under $10, from groceries to cleaning products and electronics. But at Dollar Tree, everything is $1 or less.

Still, Yarbrough expects some headquarters jobs will be cut.

“You’re not going to need two CFOs, you’re not going to need two treasurers (and) unfortunately you’re not going to need two investor relations people,” Yarbrough said. “(But) there’s just not enough overlap in the business models to have this mass layoff.”

Yarbrough said he anticipates Family Dollar may need to cut prices further to stay competitive, given its weak performance over the past few years.

“You’re dealing with a low-income customer that comes into your store,” Yarbrough said. “It’s not like you can say ‘let’s improve our service’ and that’s going to differentiate itself from Dollar General. People are going in there looking for the lowest price.” Levine declined to comment Thursday on whether pricing strategies would change.

A shareholder challenges the CEO

A few dozen shareholders, executives and Family Dollar board members attended Thursday’s meeting at the Mint Museum on Randolph Road. One shareholder, Gary Burgess, challenged Levine about why the company didn’t accept Dollar General’s higher, all-cash bid.

“Dollar General offered us $80 per share, cash,” Burgess, who said he and his wife own 200 shares, told Levine. “That’s a heck of a lot better than $76.50,” the final value of Dollar Tree’s offer, said Burgess.

Levine said he agreed that Dollar General’s higher, all-cash bid looked tempting. But he said again the Federal Trade Commission was sure to block Dollar General.

Burgess pressed Levine to explain why Dollar General’s deal, which would have included a $500 million breakup fee if Dollar General couldn’t close it, wasn’t better than Dollar Tree for shareholders.

“I own a few shares also, so I care how this thing turns out,” said Levine, who is the largest single shareholder. He owns almost 8.8 million shares, 7.7 percent of the total, worth $672 million. “I completely disagree with your analysis, and would suggest you do some research,” Levine told Burgess.

When the deal is finalized, Family Dollar shareholders will be paid $59.60 in cash per share, and they’ll receive a portion of Dollar Tree shares based on the number of shares they own, said Randy Guiler, Dollar Tree’s vice president of investor relations. Family Dollar’s stock symbol, FDO, will disappear.

Levine said much remains to be decided about integrating the two companies. For now, he said, the focus is on finalizing the deal.

“I’m looking forward to getting this done and moving on with life,” said Levine.

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