Investors drove Family Dollar's shares past the $8.5 billion offer price made by Dollar Tree, indicating they're betting another bid will surface. Fred Katayama reports.
A merger between two deep discounting dollar stores will mint big bucks for some billionaire hedge fund owners. Dollar Tree is buying its bigger rival Family Dollar for $8.5 billion, paying a 23 percent premium. It said it's making the move to broaden its customer base and geographic network. With more than 13,000 stores combined, Dollar Tree will run both brands separately. Dollar Tree caters to middle class shoppers at its suburban stores. Family Dollar courts lower-income customers at its urban and rural locations. Cashing in on the deal: Carl Icahn, Family Dollar's biggest shareholder with a 9.4 percent stake. He had been pressuring the retailer to sell itself to Dollar General. Other hedge fund investors who stand to gain include Nelson Peltz and John Paulson. Family Dollar shares rocketed beyond the offer price, indicating investors are betting that another bid will surface, and they even sharply bid up shares of the acquirer. But Dollar General fell. Dollar Tree says the merger will add to earnings in its first year. But RBC analyst Scot Ciccarelli thinks the deal will slow the high growth rate of Dollar Tree's stores, saying, "The deal adds size and scale, but with Family Dollar being run as a separate company, we don't see a lot of strategic synergies."