Where Does Icahn Stand in the Dollar Tree, Family Dollar Merger?

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Discount store operator Dollar Tree Inc. (NASDAQ: DLTR) has entered a definitive merger agreement with Family Dollar Stores Inc. (NYSE: FDO) under which the former will acquire the latter in a deal worth $74.50 per share. The price represents a premium of about 23% over Family Dollar’s closing price last Friday.

Activist investor Carl Icahn acquired a 9.4% stake in Family Dollar earlier this year and stands to make a tidy profit from his position. At the time Icahn acquired the shares, he said he planned to talk to management about operating initiatives and strategic alternatives. Whether or not he did, he appears to have gotten his way.

Family Dollar shareholders will get $59.60 in cash and $14.90 in Dollar Tree stock in exchange for their Family Dollar stock. The deal is expected to close early next year. Family Dollar stockholders will own between 12.7% and 15.1% of Dollar Tree’s outstanding common stock at the time of the closure. Howard R. Levine, the son of Family Dollar’s founder and the company’s current chairman and chief executive officer, and Nelson Peltz’s Trian Fund Management together own about 16% of Family Dollar’s stock and have agreed to support the merger.

Following the merger, the company will continue to operate more than 13,000 stores under the two existing brands. Revenues are expected to top $18 billion. Synergies have been estimated at $300 million by the end of the third year following the deal’s closing.

There was no word in the announcement of how Icahn liked the deal or how he would vote his shares. Icahn acquired 10.7 million shares at a share price of $60.53 and a total value of close to $650 million. Given his silence on the deal, one might wonder if Icahn might agitate for more.

Shares of Family Dollar were up about 24% in premarket trading Monday, at $75.23 in a 52-week range of $55.64 to $75.29.

Dollar Tree’s stock was up 9.2%, at $59.21 in a 52-week range of $49.59 to $60.19.

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