Dollar Tree share price up, provides an update on Family Dollar deal

Dollar Tree Inc announced it has to close a “relatively small” number of stores in order to get its $8.5-million acquisition of Family Dollar Stores approved by the US antitrust regulators.

Dollar Tree said it would combine forces with the Federal Trade Commission during the next few weeks in order to find the total of divestitures required. The company added that it does not expect that the disposal of its stores, “no more than our original commitment”, to have a material impact on its plans for the combined organization.

When Dollar Tree first unveiled the deal in July, it said the company is ready to close up to 500 stores so the deal gets approved. Merging the two dollar companies would create the biggest dollar store in the US, which would compete better with rivals such as Wal-Mart Stores Inc.

The agreement provoked another player to interfere, market leader Dollar General made a $9.1 billion offer. However, the bid was rejected by Family Dollar due to antitrust concerns.

Dollar General has also engaged in talks with the FTC related to the possible purchase of Family Dollar. The company said it is willing to divest as much as 1 500 stores if needed, although Family Dollars CEO Howard Levine said there is a “very real and material risk that the transaction proposed would fail to close,” as it would be unsuccessful to get a regulatory approval.

“Dollar Tree believes that the FTC may require divestitures far in excess of the 1 500 stores that Dollar General has offered to divest in its tender offer for Family Dollar” said the company.

The FTC are focused on the similarities and the differences of the two business, while trying to determine how a possible merger between the discounters would affect competition and pricing. Family Dollar sell primarily branded consumable products at $20 or more, while Dollar Tree sell everything for $1 or less.

Family Dollars shareholders will vote on the acquisition during a special meeting scheduled on December 23. Dollar Tree and Family Dollar have agreed not to close the deal until January 30, unless the FTC completes its review earlier and terminates the waiting period.

Dollar Tree gained 0.71% on Wednesday and an additional 0.10% on Thursday to close at $69.27 on the NASDAQ, marking a one-year increase of 26.17%. The company is valued at $14.25 billion. According to the Financial Times, the 20 analysts offering 12-month price targets for Dollar Tree have a median target of $70.50, with a high estimate of $76.00 and a low estimate of $60.00. The median estimate represents a 1.78% increase from the last price of $69.27.