Dollar General Counters Dollar Tree's Offer for Family Dollar

Dollar General has made a proposal to acquire Family Dollar Stores, Inc. for $78.50 per share in cash, in a transaction valued at $9.7 billion. The proposal was conveyed this morning in a letter to Family Dollar's Board of Directors. This transaction would deliver increased consideration and immediate liquidity to Family Dollar's shareholders and represents a compelling opportunity to create value for Dollar General shareholders. The combination would solidify Dollar General's position as the largest small-box discount retailer in the U.S. with nearly 20,000 stores in 46 states and sales of over $28 billion.

Dollar General's all-cash proposal of $78.50 per share would provide Family Dollar shareholders with a substantially superior valuation to the $74.50 per share cash/stock offer announced by Dollar Tree, Inc. on July 28, 2014.

"For Family Dollar shareholders, our proposal is financially superior to the current transaction agreement with Dollar Tree and would provide Family Dollar shareholders with a substantial premium and immediate liquidity for their shares," said Rick Dreiling, Dollar General's chairman and CEO. "For Dollar General shareholders, the proposed combination of Dollar General and Family Dollar would be a significant strategic opportunity to create immediate and lasting shareholder value. For both Dollar General and Family Dollar customers, we would be able to provide better value and greater selection.

"We have the utmost respect for Family Dollar, its leadership and its employees. We look forward to expeditiously entering into constructive discussions with Family Dollar in order to sign a definitive merger agreement that provides enhanced value to Family Dollar shareholders and enables Dollar General to realize the benefits of this combination," Dreiling continued.

Strategic benefits
Dollar General believes the highly complementary nature of the two companies would create a unique opportunity to deliver value to shareholders and customers:

Solidify position as the leading small-box discount retailer. The transaction would create the preeminent small-box retailer in the U.S. based on store locations, delivering convenience and everyday low prices to customers through nearly 20,000 stores in 46 states with sales exceeding $28 billion and more than 160,000 employees.

Complementary business models. The business models and product mixes of Dollar General and Family Dollar are highly complementary. There is opportunity to more efficiently and effectively manage the Family Dollar portfolio of stores given Dollar General's strong track record of success in improving its own profitability since 2008.

Clear operational synergies and integration plan. The proposed transaction would be expected to generate significant synergies of $550 million to $600 million on an annual run-rate three years post-closing. Dollar General has developed extensive integration plans across work streams. The expected synergies would be derived from sales growth driven by an improved merchandise offering and store presentation, purchasing and sourcing efficiencies, distribution and transportation optimization and administrative savings. The scale that would be created by a combination would allow Dollar General to continue to help customers Save time. Save money. Every day!® through better value and greater selection to customers of both Dollar General and Family Dollar.

Tenured management team with a proven track record. Rick Dreiling, who led the management team that transformed Dollar General starting in 2008, has agreed to postpone his previously-announced retirement and remain in the role of Chairman and Chief Executive Officer of the combined company until May 2016, if a merger agreement is signed, in order to oversee the successful integration of the two companies. Beyond that date, Dreiling has also agreed that, if asked by the Board and elected by shareholders, he would remain as a Board member and would be willing to serve as chairman.

Significant earnings accretion through synergies. The proposed transaction would be low double-digit accretive on a percentage basis to earnings in the first full year excluding implementation and transaction costs. The combined company would continue to generate significant cash flow and would be expected to return to investment grade ratios within approximately three years from the closing of the proposed transaction.

Transaction details
The proposed transaction values Family Dollar at an enterprise value of approximately $9.7 billion, and it represents an enterprise value to EBITDA (for the last 12 months ending May 31, 2014) multiple of 11.6x. The proposal has the unanimous approval of the Board of Directors of Dollar General.

Goldman Sachs and Citigroup Global Markets Inc. have agreed to provide committed financing for all of the financing necessary to consummate the transaction. The financing includes estimated fees and expenses, including the $305 million termination fee payable to Dollar Tree in the event Family Dollar terminates the existing merger agreement to enter into a merger agreement with Dollar General.

Dollar General has undertaken significant economic and antitrust analysis with respect to the transaction and is confident it can quickly and effectively address any potential antitrust issues. Dollar General is prepared to commit to divest up to 700 retail stores in order to achieve the requisite approvals, which is approximately the same percentage of the total combined stores represented by the 500 U.S. store divestiture commitment in the Dollar Tree merger agreement.

Dollar General is prepared to enter into a definitive merger agreement that would be substantially similar to the one entered into between Dollar Tree and Family Dollar, modified as necessary to accommodate Dollar General's all-cash proposal, the antitrust matters described above and to provide a time period to close the proposed transaction consistent with that set forth in the existing agreement. In addition, Dollar General is prepared to revise the agreement to permit Family Dollar to continue to pay its regular quarterly cash dividend through closing on terms consistent with past practice.

Goldman, Sachs & Co. is acting as financial advisor to Dollar General and Simpson Thacher & Bartlett LLP is acting as its legal counsel.
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