Ackman joked that someone offered the organizers of the event $5,000 if Ackman would make sure no longer than the 15 minutes allotted to him.
Ackman talked about a new stock he owns:
Family Dollar (FDO) store has a $6.5 billion market cap, 14x PE. It serves lower income, and it serves them well. Prices are close to ones at Walmart (WMT). The stores are much smaller than Walmart; you spend ten minutes in the store. And you can pull up with your car right to the front door.
A lot of their customers live paycheck to paycheck. It continues to take share even during bad times. Ackman also thinks the company has a good social purpose as it helps poor people who cannot afford to make bulk purchases at Walmart to buy cheap items in small quantities.
Same store sales have been doing well. Very profitable high ROC, over 20%. They earn good returns on money. They use maintenance capex and all extra capex is used for share buybacks.
They are going around the country. They have 20k units, but they have more room to grow.
They have 37% return on investment. Their renovations are very accretive.
Their arch competitor is Dollar General. Comparing the two companies back in time they did well. KKR Financial Holdings (KFN) bought Dollar General and since then it has massively outperformed Family Dollar.
However, Family Dollar is doing a good job now. It is not only about cost cutting, but it is every metric.
Family Dollar is still playing catch up with Dollar General. Their costs are mostly fixed; variable costs are a small percentage of costs.
The business is stable and grows over time and you can buy it at 14x earnings. But if they can close the gap what is that worth? Or even if it partially gets there you make a lot of money.
Trian owns a lot of stock. John Paulson also owns some of the stock. Ackman mentioned that he was buying stock today and yesterday.
It is reasonably priced; if they make margin improvements you can make 70% returns. Family Dollar is currently trading at $45 and could be worth up to $92. They can afford to take on more leverage.
The business could be bought by Dollar General or even KKR. It is an attractive LBO opportunity for a large private equity firm.