Friday, September 5, 2014
Gauntlet thrown, this morning Family Dollar responded to Dollar General's increased offer in the only way it could (if it wants to say no):
Ed Garden, a Family Dollar director and co-founder and Chief Investment Officer at Trian Fund Management, L.P., a large shareholder of the Company, stated, “We are focused on delivering to Family Dollar shareholders the highest value with certainty, and the Dollar Tree transaction does just that. Dollar Tree has taken the antitrust risk off the table by committing to divest as many stores as necessary to obtain antitrust clearance. We remain fully committed to the Dollar Tree transaction.”
Mr. Garden continued, “Dollar General’s revised proposal, on the other hand, does not eliminate regulatory risk for Family Dollar shareholders. Dollar General has repeatedly stated that antitrust is not a risk, yet they have put forth proposals that require Family Dollar shareholders to bear the ultimate risk. Receiving a reverse breakup fee with an after-tax value of less than $3 a share does virtually nothing to compensate the Family Dollar shareholders for assuming that risk.”
It is true that Dollar General went very far to reduce the real risk of antitrust being a block to getting the deal done, but FDO apparently believes it didn't go far enough. Turns out, absent other evidence, that a determination that Dollar General's improved bid and commitment with respect to antitrust isn't enough is still completely within the purview of the Family Dollar board. They looked at the remaining antitrust risk and figured it wasn't worth the $3/share offered in the reverse break up fee. You may disagree. I may disagree. But, it's not for you or I to say. Consistent with their obligations under Revlon, it's for the FDO board to determine. Of course, it's a very close call and the motivations of the board really matter, but the FDO - by sticking to its message that antitrust risk is critical to them - is hoping to be able to either stave off a Dollar General acquisition or maneuver Dollar General into giving up yet more concessions to alleviate the antitrust risk. You may disagree with the decision, but is the decision unreasonable? Probably not.
If Dollar General isn't willing to revisit its offer, I suppose the next step for Dollar General is to head off to court to try to get an injunction to prevent FDO shareholders from voting on the Dollar Tree deal. That's a tough road to hoe, but absent going all in on antitrust or another price increase, it's probably one of the few cards left for Dollar General to play here.