America's leading deep discount retailer Dollar General yesterday warned it might go hostile and head straight for Dollar Stores’ shareholders if its rival rejected its latest $9.1bn (£5.5bn) bid.
It also said it would pay a break-up fee of $500m if the deal ran foul of competition law, the reason Family Dollar had cited for its rejection of an earlier $8.9bn offer.
Family Dollar opted instead for an $8.5bn cash-and-stock bid from competitor Dollar Tree.
Family Dollar said its board would review Dollar General’s new offer, but for now it was sticking with its deal with Dollar Tree.
The fight for Family Dollar comes at a time when the deep discounters are struggling with minimal or no gross margin growth as they try to keep lower-income shoppers from being lured by giants such as Wal-Mart and Target Corp.
Wal-Mart is stepping up its efforts to take on small-format stores, typically one quarter the size of its supercentres, a move that could result in increased competition for the dollar stores.
Wolfe Research said in a note that the best outcome for all parties was for Dollar General to merge with Family Dollar as it would be the best placed to compete with Wal-Mart.