Family Dollar Initiates Shareholder Rights Plan after Icahn Stake Announced

Dollar general, Icahn, Dollar Store, ShareholderIcahn Shakes up the Dollar-Store Industry

Last Friday the legendary activist investor Carl Icahn announced a 9.39% stake in Family Dollar (NYSE: FDO).  After closing Friday at $60.53 a share, shares opened on Monday up 12% and climbed as high as $70.29 during the trading day.  Shares in Dollar General (NYSE: DG) also gapped up 9% on speculation that Icahn would pave the way for a merger with Family Dollar.  In Icahn’s filing, he said that he would consider pushing for strategic alternatives such as mergers. According to a Jefferies analyst, synergies of a merger “could be in the range of $950 million- 1.2 billion” which would be huge for the struggling dollar stores.

Poison Pill

However, Family Dollar responded today with a one-year shareholder rights plan that functions effectively as a ‘poison pill.’  In essence this plan requires anybody attempting to gain more than 10% ownership of the company, a number that “may be amended, redeemed, or terminated by the Board at any time,” has to pay a control premium for it.  This would seem to be put in place to deter investors like Icahn from gaining even more influence over the company.   

Fellow Activist Investors

This move did not deter investors as Family Dollar held onto its gains for the day closing up 13.4%.  This may be with good reason as Icahn is joining activist investor Nelson Peltz of Trian Fund management, as the two largest shareholders of Family Dollar. Peltz was responsible for getting Edward Garden, the only person to vote no to the shareholder rights plan, onto the board of directors back in 2011.  In fact Icahn, Peltz, and John Paulson of Paulson & Co. combined, own over 20% of Family Dollar. 

How Will It Play Out

Family Dollar’s board of directors has said it is leaving the door open to a potential friendly deal.  Their actions would seem to back that up as the defensive maneuver doesn’t necessarily prevent a takeover attempt.  It will be interesting to see how it all plays out, whether the merger comes together or if another competitor like Dollar Tree (NASDAQ: DLTR) somehow enters the fray.

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