Billionaire Offers $7 Billion for Family Dollar Stores

Family Dollar

Family Dollar, which sells merchandise mostly under $10, is the target of the latest multi-billion buyout offer.

Matthews, NC–Family Dollar stores confirmed Tuesday that it received a $7 billion buyout offer from hedge fund Trian Group managed by billionaire Nelson Peltz.

Family Dollar, which operates more than 6,800 stores in 44 states, expanded rapidly during and after the economic downturn by drawing in cost-conscious customers with its low prices (usually $10 or less) on food, and other basics including apparel and accessories.

Low End Retail: Ripe for Takeover Bids

According to papers filed with the Securities & Exchange Commission, Trian Group owns about 8% of the company’s shares a proposing a take-private at a price between $55 and $60 per share. That amounts to a deal worth between $6.9 billion and $7.6 billion.

Shares of Family Dollar Store Inc. soared today on news of the unsolicited takeover offer from the firm of activist investor Nelson Peltz, who also made major investments in Wendy’s/Arby’s Group Inc. and Tiffany & Co.

Family Dollar said on Tuesday that its board would review the proposal with advisers. Wedbush Morgan analyst Joan Storms said the offer was “more than generous” and richer than other recent deals.

“The announcement highlights the positive attributes of the dollar store business model. It is a high returning, low capital intensive business with strong cash flow and low levels of debt on the balance sheet,” Credit Suisse analyst Michael Exstein wrote in a research report today.

Earlier this year, Family Dollar lifted its full-year earnings target after recording an almost 7% rise infirst-quarter same-store sales. The company expects its annual earnings per share to hit between $3.08 to $3.23, after first quarter profit rose 9.9% to $74.3 million.

The low end of the retail sector has become a more attractive place for leveraged buyout firms to go shopping. Private equity firm Kohlberg Kravis & Roberts bought rival Dollar General in 2007 in a deal valued at $7.3 billion and took it public two years later.

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