Dollar Tree to Buy Family Dollar for $8.5 Billion

Chesapeke, Va.-based Dollar Tree Inc. (DLTR) agreed Monday to buy rival Family Dollar Stores Inc. (FDO) in for about $8.5 billion to create the largest discount store chain with more locations than any other retailer in the U.S.

Dollar Tree plans to pay $74.50 for each share in cash and stock at a premium of nearly 23 percent to Family Dollar’s closing price Friday, according to a statement released by the companies Monday. The bid includes $59.60 per share and $14.90 in Dollar Tree stock. Including debt, the deal is valued at about $9.2 billion, Bloomberg reports.

Family Dollar Chief Executive Officer Howard Levine, whose father founded the company, had previously been reluctant to sell despite a push by billionaire investors Carl Ichan and Nelson Peltz, both of whom had acquired major stakes in the company. But years of struggling to compete with competitors Dollar Tree, Wal-mart Stores Inc. (WMT) and the current market leader Dollar General Corp.,

“This is a transformational opportunity,” Bob Sasser, Dollar Tree’s chief executive, said in a statement. “Throughout our history, we have strived continuously to evolve and improve our business. This acquisition, which enhances our footprint and diversifies our company, will enable us to build on that progression, and importantly, positions Dollar Tree for accelerated growth.”

The two companies will have a combined 13,000 stores in 48 states and Canada with more than $18 million in revenue. The companies expect to realize about $300 million in annual cost savings once the deal comes to a close early next year.