Two of Dollar General's biggest competitors are set to join forces via an acquisition worth $9.2 billion. Dollar Tree plans to buy beleaguered Family Dollar to create a company with more stores than and roughly the same sales than Goodlettsville-based Dollar General.
"This is a transformational opportunity," stated Bob Sasser, Dollar Tree's Chief Executive Officer. "With the acquisition of Family Dollar Stores, Dollar Tree will become a leading discount retailer in North America, with over 13,000 stores in 48 states and five Canadian Provinces, sales of over $18 billion, and more than 145,000 associates on our team. We will continue to operate under the Dollar Tree, Deals, and Dollar Tree Canada brands, and when this transaction is complete, we will operate under the Family Dollar brand as well."
Shares of Dollar General (Ticker: DG) are down 3.6 percent in pre-market trading.
SEE ALSO: One more time, mulling a Dollar General-Family Dollar deal from last month
Whether you think Dollar General will buy Family Dollar depends on how many more stores you think they can build
The biggest early Wall Street proponent of Dollar General buying out a Family Dollar, now 9 percent-owned by Carl Icahn, is Jefferies analyst Daniel Binder, who on Monday raised his ratings for both discount retailers to 'buy' from 'hold' and said a joining of their forces would do much to slow the pace of new store growth.
Calling Dollar General "a motivated buyer given where we are in the lifecycle of this dollar store industry," Binder has cranked up his price target on the Goodlettsville-based company to $75 from the $56 at which he initiated coverage two months ago.
"Simply put, the industry has matured, there are clear performance gaps between the number one and two players, we think the pace of capacity increases are out of balance, new competition is coming and we see potential for large synergies," Binder wrote.
But there is little consensus that the industry actually has matured to the extent Binder contends. Dollar General Chairman, President and CEO Richard Dreiling last fall said the company's real estate models now project the opportunity to build another 14,000 stores, up from the previous estimate of 10,000. The company will this year open 700 new locations and this morning said additions in Maine, Rhode Island and Oregon will give it a footprint across 43 states by early next year.
Also countering Binder's thoughts on store growth is John Heinbockel at Guggenheim Securities, who says Family Dollar's story should be one of an organic turnaround and sees the industry six to seven years away from maturity. On top of that, he lists the big nuts-and-bolts challenges — IT platforms, supply chains and corporate cultures among them — that would come with a big deal and says it just wouldn't be worth it for Dreiling and company.
"These risks are usually worth taking after a sector has gone ex-growth and compelling, low-risk organic expansion is no longer an option," Heinbockel wrote in a note Monday. "That is not the case with respect to the dollar store sector today. It has not gone ex-growth — to the contrary; we are still many years away from saturation."
Over at Sterne Agee, Chuck Grom is relying on the word of Dreiling's team, which he says has "gone out of its way to suggest" that a Family Dollar deal isn't in the cards. A going-private transaction is the most likely avenue out of Family Dollar's Icahn situation, Grom said.
Heading into the last hour of trading Monday, shares of Dollar General (Ticker: DG) were up about 8 percent while those of Family Dollar had gained 14 percent from Friday's close.
Healthways CEO Ben Leedle on Tuesday passed on to his employees word of the wellness company's ceasefire with activist investment fund North Tide Capital. Calling the deal to give North Tide three board seats a "positive outcome," he also took time to point out that he — a prime target of North Tide manager Conan Laughlin — and other senior executives will stay in their jobs.
In addition, Leedle described the Strategic Review Committee that will soon be formed as having the goal "to assure that the board and management remain aligned on the company strategy." That's an interesting — and, given Laughlin's calls for big changes, perhaps somewhat optimistic — spin on the language contained in the standstill agreement, which says "the purpose of the Strategic Review Committee shall be to review, evaluate and make recommendations to the Board regarding the Company's business strategy."
Here's a copy of Leedle's email:
North Tide Capital, the hedge fund taking aim at the Healthways board of directors, has updated its presentation to investors. The new version is beefed up with more questions about the company's investments in (and revenues from) initiatives such as MeYou Health, the Dean Ornish lifestyle management program and the Blue Zones partnership with Gallup. The new presentation — view it here and compare it to the old one here — strikes a tone that is softer at times but as strident as before in other places, especially in terms of the Healthways board's unconditional backing of CEO Ben Leedle and his strategies.
Some items that caught our eye:
• Addressing the company's insistence that its Silver Sneakers senior fitness program is a way to leverage costs across the company, North Tide manager Conan Laughlin says "Silver Sneakers funds a giant, money-losing science experiment."
• Tipping his hat to the board for disclosing that Healthways' international business posted a 2013 EBITDA of $3 million, Laughlin then turns around to say that means "the non-Silver Sneakers business loses more money than we had thought."
• North Tide quotes a note from Dougherty & Co. analyst Brooks O'Neil that thinks out loud about director candidate Mac Crawford becoming not just executive chairman if elected, but also filling the CEO seat now held by Leedle.
The board and management of Healthways have responded at length to the proxy challenge mounted by North Tide Capital hedge fund manager Conan Laughlin, who wants big changes at the company and is pushing for four board seats at its upcoming shareholders' meeting. Healthways leaders say Laughlin's ideas to spin out SilverSneakers and shut down international operations suggest he doesn't truly understand the company's business. Also among the components is a defense of the vision of CEO Ben Leedle, whom Laughlin wants to boot out, and letters of support from two big customers.
Healthways investors will vote June 24 on the North Tide proposals. The company's shares (Ticker: HWAY) closed Wednesday trading at $17.88 and have risen 16 percent so far this year.
Sardar Biglari's quest to change the strategic direction of Cracker Barrel Old Country Store is turning into a case study of diminishing returns. At the recent special shareholders' meeting called by the 20 percent investor, his push to have the board consider "immediately pursue all potential extraordinary transactions" received barely a million votes from shareholders not named Biglari.
Here's how the votes have trended over the past three and a half years:
December 2011 board seat – 6.6 million total and 4.3 million without Biglari stake
November 2012 board seat – 5.6 million total and 1.5 million
November 2013 board seat – 5.9 million total and 1.2 million
April 2014 sale motion – 5.8 million total and 1.0 million