Family Dollar bid sparks rally in discount stores
Billionaire investor Nelson Peltz's bid for Family Dollar Stores Inc
Shares of Dollar General Corp
The bid for Family Dollar underlines the value of a sector marked by steady operating margins, low cost and resilience to economic swings, several analysts said.
The announcement highlights the positive attributes of the dollar store business model. It is a high returning, low capital intensive business with strong cash flow and low levels of debt on the balance sheet, Credit Suisse analyst Michael Exstein said in a research report on Wednesday.
Retail -- especially at the low end of the sector -- has become a more attractive place for leveraged buyout firms to go shopping. Family Dollar and other low-priced retailers were big beneficiaries of consumers trading down to save money in the downturn.
Private equity firm Kohlberg Kravis & Roberts
Several analysts said that Dollar General -- with a market value of more than $10 billion and not a likely takeover candidate -- might have to take a serious look at a combination with Family Dollar, although need for significant merger synergies will make such a deal tough to pull off.
Family Dollar, which sells most of its items for $10 or less, is among a slew of other discount retailers that are exploring a sale following expressions of interest, such as Big Lots Inc
Big Lots has hired Goldman Sachs Group
BJ's Wholesale Club said earlier this month that it may put itself up for sale, under pressure from a private equity firm that may make a hostile bid.
Shares of Dollar General jumped more than 11 percent to trade at $29.98 on the New York Stock Exchange. Dollar Tree was up more than 3 percent to $52.71 in morning trading on the Nasdaq market, giving it a market value of more than $6.5 billion.
(Reporting by Soyoung Kim; Editing by Steve Orlofsky)
© Copyright Thomson Reuters 2024. All rights reserved.