Aug 18, 2014 3 min read

GOODLETTSVILLE, Tenn. – There’s now a bidding war for Family Dollar, with Dollar General offering about $8.95 billion for the discounter in an effort to trump Dollar Tree’s bid.

Dollar General Corp. said Monday it would pay $78.50 per share in cash, 3 percent higher than Family Dollar Stores Inc.’s Friday closing price of $76.06. Dollar General put the deal’s value at $9.7 billion.

Last month Dollar Tree Inc. made an $8.5 billion bid for Family Dollar. It offered to pay $59.60 in cash and the equivalent of $14.90 in shares of Dollar Tree for each share they own. The companies put the value of the transaction at $74.50 per share at the time. Including debt and other costs, the companies estimated the transaction to be worth approximately $9.2 billion.

Dollar General said its offer would create a business with almost 20,000 stores in 46 states and sales of more than $28 billion. The Goodlettsville, Tenn., company anticipates annual savings of $550 million to $600 million three years after the transaction closes.

Representatives for Dollar Tree and Family Dollar did not immediately respond to requests for comment.

The jockeying to secure Family Dollar comes as discounters look to fend off competition from companies such as Wal-Mart Stores Inc., which was stepping up its courtship of lower-income customers.

Dollar stores grew during the recession as people across income groups searched for cheaper options. To attract a broader array of customers, they also expanded their offerings to include more groceries and brand-name products, instead of just the party favors and other knickknacks people often associated with them.

More recently, however, sales at dollar stores are suffering because the lower-income customers who go to them are facing persistent job instability and slow wage growth in the aftermath of the recession. Wal-Mart Stores Inc. and Kroger Co. also were opening smaller store formats to directly compete with dollar stores.

Dollar General and Family Dollar sell products at various prices. At Dollar Tree, everything at its stores costs just a buck.

Family Dollar came into play because of its business struggles. The Charlotte, N.C., company was shuttering stores and cutting prices in hopes of boosting its financial performance. In June, investor Carl Icahn urged the company to put itself up for sale.

Dollar General said it believes it can quickly and effectively address any antitrust issues and is willing to divest up to 700 of its stores in order to get the necessary approvals for the transaction. Dollar Tree agreed to divest 500 of its U.S. stores for its proposed deal.

If a deal goes through, Dollar General said Chairman and CEO Rick Dreiling agreed to postpone his retirement until May 2016 in order to help with the integration of the two companies. Dollar General announced in June Dreiling planned to retire from the CEO post in May 2015, or when a successor was appointed. He agreed to stay on as chairman during the transition process.

Dreiling also agreed to remain as a director – and would be willing to serve as chairman – if asked by the board and elected by shareholders.

Dollar General said Goldman Sachs and Citigroup Global Markets Inc. agreed to provide committed financing, which would include the $305 million termination fee because of Dollar Tree if Family Dollar chooses a deal with Dollar General instead.

Dollar General’s board unanimously approved the Dollar Tree deal. Its stock rose $5.54, or 9.6 percent, to $63 in premarket trading.