Dollar Tree Inc. and Family Dollar Stores Inc. have entered into a definitive merger agreement under which Dollar Tree will acquire Family Dollar for cash and stock valued at approximately $8.5 billion.

Dollar Tree Inc., Family Dollar Stores Inc., Bob Sasser, Howard Levine, Rick Dreiling,

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Dollar Tree to acquire Family Dollar for $8.5 billion

July 28th, 2014

CHESAPEAKE, Va. – Dollar Tree Inc. and Family Dollar Stores Inc. have entered into a definitive merger agreement under which Dollar Tree will acquire Family Dollar for cash and stock valued at approximately $8.5 billion.

The deal, which has been approved by the boards of directors of both retailers, is expected to close by early 2015.

If completed, the combination will mark a huge step forward in the consolidation of the extreme-value discount segment.

"This is a transformational opportunity," says Bob Sasser, chief executive officer of Dollar Tree. “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 $18 billion, and more than 145,000 associates on our team. We will continue to operate under the Dollar Tree, Deal$, Dollar Tree Canada brands, and when this transaction is complete, we will operate under the Family Dollar brand as well. Throughout our history, we have strived continuously to evolve and improve our business. This acquisition, which enhances our footprint and diversifies our company, will enable us to build on that progression and, importantly, positions Dollar Tree for accelerated growth. By offering both fixed-price and multi-price-point formats and an even broader, more compelling merchandise assortment, we will be able to provide even greater value and choice to a wider array of customers."

Sasser went on to note that the acquisition will extend Dollar Tree’s reach to lower-income consumers and diversify the company’s store footprint as well. "We plan to leverage best practices across both organizations to deliver significant synergies, while we accelerate and augment Family Dollar’s recently introduced strategic initiatives," he said. "Combined, our growth potential is enhanced with improved opportunities to increase the productivity of the stores and to open more stores across multiple banners."

Family Dollar chairman and CEO Howard Levine will remain with the company and report to Sasser. He will also join Dollar Tree’s board of directors.

Ironically, in recent months there has been enormous speculation regarding a possible acquisition of Family Dollar by Dollar General Corp., currently the largest of the extreme-value, or deep-discount, retailers. That speculation has been stoked by major investors in Family Dollar and by analysts who have been dissatisfied with the company’s recent performance and issued repeated calls for its sale.

However, the recent announcement that Rick Dreiling, Dollar General’s chairman and CEO, will retire as CEO by next May, defused speculators’ scenarios calling for a Dollar General takeover since it is extremely unlikely that the company would undertake a major acquisition while in the midst of a leadership transition.

"Today’s announcement represents the successful culmination of a comprehensive strategic review process that our board of directors, working with its financial and legal advisors, began this last winter," Levine says. "While this assessment of alternatives included considerations of a number of potential partners, we are pleased to conclude this process with the announcement of this compelling transaction with Dollar Tree. This combination will enable Family Dollar to accelerate efforts to improve the business and will benefit our dedicated team members, who will now be part of a larger, more diverse organization."

If the transaction is completed, Dollar Tree management expects it to be accretive to cash earnings per share within the first year after it closes, excluding onetime costs to achieve synergies. The company also expects the merger to generate synergies in the form of sourcing and procurement efficiencies; leverage of selling, general and administrative expense; greater efficiencies in distribution and logistics; and format optimization. Management projects that the deal will produce around $300 million in annual synergies by the end of the third year after closing.