Dollar Tree said Friday it may have to divest approximately 250 locations to complete its acquisition of Family Dollar Stores — a smaller number than previously anticipated, observers pointed out.
In an SEC filing the Chesapeake, Va.-based company reported the 250-store number, adding, “We continue to estimate that no more than roughly 300 stores will be required to be divested.”
Chuck Grom, an analyst with Sterne Agee, New York, said the count on potential divestitures “is moving in the right direction,” with the number of stores Dollar Tree will ultimately need to close “getting smaller.
“Back in January, the FTC initially indicated approximately 300 stores were in question, but in February Dollar Tree learned the FTC was reviewing more than 500 stores and could identify additional stores.”
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Dollar Tree agreed in January to acquire Family Dollar in a deal valued at approximately $9.2 billion. The combination would create a company operating more than 13,000 stores in 48 states and Canada, with annual sales exceeding $18 billion.
Dollar Tree said in the filing it expects the Federal Trade Commission to complete its review of potential divestitures “in the near future,” with the hope the merger can be completed by April, though “it is uncertain whether the FTC will approve the transaction by that date.”
The company also said it has made “good progress” with potential buyers of divested Dollar Tree and Family Dollar stores. “[We] have received multiple indications of interest from buyers, each of whom intends to operate these divested locations as dollar stores to address the FTC’s concern,” Dollar Tree said in the filing.
“We will work to secure FTC approval and finalize divestiture agreements with the selected bidder(s) as soon as practical.”
According to Grom, once Dollar Tree is able to execute a consent decree with the FTC, it would kick off a four-week notice period, “which may be terminated early by the FTC.”
Grom said he has a favorable opinion of Dollar Tree’s stock, pointing out it “checks all the boxes” that investors look for, including mostly U.S.-only retail exposure, high exposure to low-end consumers, a standalone entity with improving traffic trends and a strong management team and material earnings support from acquisition synergies.
“While we still need to hear more from the Dollar Tree management team on its Family Dollar turnaround strategy, we expect the company will soon outline a detailed game plan on how it will look to integrate the two chains and, more importantly, improve the sales productivity and profitability of Family Dollar,” Grom said.
“While skeptics exist on Dollar Tree’s ability to fix Family Dollar, such a bear case won’t necessarily manifest until 2016, creating a nice window where the bears will not be able to be proven right.”
Date: March 13, 2015