Dollar stores may not seem like likely targets of M&A interest, but the industry’s recent woes have Wall Street’s dealmaker’s circling.
The industry has grown significantly over the past two decades, especially as the recent recession attracted more families looking for cheap deals.
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Indeed, the three largest chains — Dollar General, Family Dollar and Dollar Tree — have increased their total number of stores from around 5,000 in 1994 to about 24,000 today.
But even the best defensive play isn’t much use when it’s time to go on offense, and the stores have recently lost customers due to a combination of the recovering economy and cuts to food stamp programs used by their poorest clientele.
In April, Family Dollar reported that its second fiscal quarter net sales had slid 6.1 percent, comparable same-store sales fell for the third straight quarter, and the company had shuttered 370 stores.
Almost like clockwork, investor Carl Icahn announced that he had taken a 9.4 percent stake in the company. Icahn says the shares are undervalued and that he intends to discuss strategies that could boost shareholder value.
The media has speculated that this could mean a possible merger with Dollar General.
So, too, has Wall Street. For its part, Credit Suisse believes such a deal would make sense, although Family Dollar’s adoption of a poison pill on June 9 suggests that they’re girding for a fight.