Icahn´s huge stake in Family Dollar and his intention to merge the company with Dollar General send shares more than 13% higher on the first days of June. His intention was realized, because Dollar Tree agreed to buy Family Dollar for about $8.5 billion, creating a giant discount chain with $18 billion in sales and more locations than any other.
Dollar Tree will pay $74.50 a share in cash and stock ($59.60 in cash and $14.90 in stock) and including debt, the deal has a value of about $9.2 billion.
Icahn and Peltz
Now, two giant investors will stay more calm. Billionaire investors Carl Icahn (Trades, Portfolio) and Nelson Peltz, who had acquired major stakes in Family Dollar and pushed for a sale, saw their wishes realized. According to Icahn, Family Dollar has underperformed compared to its peers. Metrics suchas store sales, total revenue growth, sales per store, operating margins, among many others, not convince the guru.For these and other reasons, Icahn believes that the company should be put up for sale immediately.
This is not the first time an investor has tried to persuade Family Dollar. Some years ago, Nelson Peltz made a bid for the company but later Mr. Peltz abandoned the effort when the company agreed to name his partner to its board.
Icahn´s stake increased in value by about $150 million, while Peltz’s who owns about 7.3% of the company, the value rose about $115 million.
Stock´s Price Movement
In the next chart we can appreciate the impact of the news on the stock price. The upside move was more than 20% above its closing price at the end of last week.
At the same timed Dollar Tree’s stock gained 3.2% to $55.96.
It is true that Family Dollar has not been as successful as its peers. Let´s see in the graph the evolution of the price performance of three companies.
As we can appreciate, Family Dollarshares go up by 30% in the past three years compared to 72% for Dollar Tree and 85% for Dollar General Corporation (DG).
The deal is expected to generate synergies in areas such as procurement and logistics, and will have improved growth prospects, the companies said.
Hedge fund gurus have also been active in the company in the first quarter of 2014. Gurus like Joel Greenblatt (Trades, Portfolio) and John Hussman (Trades, Portfolio) have bought it in that time frame.
Disclosure: Omar Venerio holds no position in any stocks mentioned.