Discount store chain Dollar Tree Inc. has announced plans to buy Family Dollar Stores Inc. for approximately $8.5 billion, creating North America’s biggest discount retailer. Dollar Tree, which said its offer had been approved by Family Dollar’s board, will have about 13,000 stores across the United States and Canada after the deal closes.
“This acquisition will extend our reach to lower-income customers and strengthen and diversify our store footprint,” Bob Sasser, Dollar Tree’s chief executive said in a statement.”
Dollar Tree also expects the deal to add to its cash earnings and “generate significant free cash flow, enabling it to pay down debt rapidly.”
Dollar Tree offered $74.50 per share—$59.60 per share in cash— representing a premium of about 23% over Family Dollar’s close of $60.66 on Friday. Family Dollar had about 114 million shares outstanding as of July 5 and had long-term debt of about $484.2 million as of May 31.
The transaction values Family Dollar at an enterprise value of about $9.2 billion, Dollar Tree said. Dollar Tree said it expects to save about $300 million annually by 2018, three years after the deal is likely to close.
Dollar Tree said it secured a bridge financing from JP Morgan Chase Bank N.A. that, along with existing cash and bonds, would be used to finance the deal. J.P. Morgan Securities LLC is financial adviser to Dollar Tree, and Morgan Stanley & Co. LLC is financial adviser to Family Dollar.
Shares of Family Dollar, which has been under pressure from activist investor Carl Icahn to sell itself, rose almost 25% to $75.50 in premarket trading on Monday. Dollar Tree shares were up 8.8% at $59.
Icahn, Family Dollar’s largest shareholder with a 9.4% stake, wanted the company to sell itself to Dollar General Corp to help it cope with the competition. Dollar General has 11,338 stores in the United States.
Dollar Tree, whose products cost $1 or less, caters to the middle class. While Family Dollar also sells many items priced at $1 or less, it stocks items priced $1 to $5 and higher as well.