Dollar Tree and Family Dollar Merger Good for Discount Stores, Bad for Walmart

Monday is discount day on Wall Street, where news that Dollar Tree will acquire rival Family Dollar Stores in a cash and stock deal that values the enterprise at about $9.2 billion. The deal announcement is boosting a host of discount stocks, save for Walmart, whose shares remain negative by midday.

Dollar Tree, which operates 5,080 stores in North America and is valued at more than $11.5 billion, said Monday that it will pay Family Dollar shareholders $59.60 in cash and $14.90 in Dollar Tree shares. The total value is $74.50 per share, or 22.8 percent over Family Dollar’s Friday closing price. The combined entity will operate 13,000 stores for a total of $18 billion in annual sales.

Shares of discount retailer Family Dollar were marked up by 25 percent at $75.93 in Monday trading as the market accounted for the terms of the buyout offer. Activist investor Carl Icahn, who took a 9.4 percent stake in Family Dollar in June and pushed for a deal, is certainly delighted as he stands to make around $174 million in profit from the investment.

Dollar Tree traders were not as enthused by the pricey deal, which the company will pay for in cash, loans, and bonds. The stock spiked in early morning trades before dropping back dramatically and then settling around $55.70 a share, up around 3 percent, by the afternoon.

The deal seems to be fueling anticipation around additional M&A activity in the discount space as shares of competitors Dollar General and Big Lots rose 2 percent and 1 percent, respectively.

Walmart, however, was left a little bruised by the transaction with shares down a quarter of a percent in Monday afternoon trades. The brand, which also operates Sam’s Club stores, operates around 11,000 stores, or less than 2,000 than the newly enlarged Dollar Tree.

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