We’ve seen numerous multi-bidder deals this year. (See, for example, Unique Synergies and theTyson Foods/Hillshire Merger.) One of the more interesting is the current deal involving Family Dollar Stores. Two bidders, Dollar General and Dollar Tree are seeking to own Family Dollar. One of the bids (Dollar General) is clearly superior, yet management of Family Dollar favors the lessor bid of Dollar Tree. One can wonder why. (See Miriam Gottfried’s article in yesterday’s Wall Street Journal for additional details.)
The Dollar Tree bid is valued at $74.50 a share. The Dollar General bid is $80. Advantage to shareholders: Dollar General.
Dollar Tree’s bid is 80% cash and 20% stock. Dollar General’s bid is all cash. Advantage to shareholders: Dollar General.
There is a breakup fee on Dollar Tree’s bid of $305 million
agreed to by Family Dollar. Dollar
General said it would pay this.
Advantage to shareholders: Neutral.
Yet management of Family Dollar favors the Dollar Tree bid
citing anti-trust concerns. Are these
valid? True Dollar General and Family
Dollar have similar business models, but there are other dominant competitors
to the firms, namely Wal-Mart. In
addition, Dollar General has agreed to divest as many as 1500 stores in an
attempt to head off any anti-trust issues.
We have shown in our research that opposition by target
management is the single biggest factor determining whether a deal goes
through. So the opposition by Family Dollar clearly gives an advantage to
Dollar Tree. The Dollar General bid is clearly superior from a shareholder’s
point of view. Management is supposed to
represent the shareholders. Management
opposes the Dollar General bid.
Hmmm. In view of the clearly
superior bid by Dollar General, one must wonder at management’s own incentives
and how (and why) they factor into the decision.
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