Family Dollar Shareholders More Likely to Vote in Favor of Dollar Tree Offer, Says Analyst (DLTR) (DG) (FDO)

Deutsche Bank thinks there is now a substantially higher probability that Family Dollar Stores (NYSE: FDO) shareholders will vote in favor of Dollar Tree's (NASDAQ: DLTR) offer during a meeting on January 22. Comments follow a press release earlier that said the staff of the FTC has provided Dollar Tree with a preliminary number of stores – roughly 300 – that appear to raise concern.

"This morning, DLTR and FDO announced that they now expect DLTR to need to divest roughly 300 stores in the scenario of a successful acquisition. Meanwhile, the FTC update indicates that DG may need to divest 3,500-4,000 stores. Although DG may respond with a higher bid and a willingness to divest more than the previously offered 1,500 stores, we believe the probability is now substantially higher that FDO shareholders vote in favor of DLTR on 1/22," said analyst Paul Trussell.

"While DG’s stock may come under pressure today/this week, we continue to believe DG also has strong organic earnings power with EPS growth for the solo company accelerating from high single-digits over the past two years to a low- to mid-teens rate in FY15 and high-teens in FY16," continued the analyst.

"Although the fate of the FDO/DLTR deal is in FDO shareholders’ hands for the 1/22 vote, we question how enthusiastic DLTR shareholders remain about the acquisition, considering FDO’s disappointing 1Q15 results, demonstrating no incremental value generated (and perhaps more headaches than anticipated) vs. a consideration of at least $76.85 as DLTR’s stock has risen recently. While we still think the deal would be accretive, synergies are back-end loaded (years 2 and 3) and carry material execution risk. We continue to think the positives related to the deal are already baked into DLTR’s stock price, and reiterate our Hold rating," he added.

Deutsche Bank has a Buy rating on Dollar General (NYSE: DG) and a Hold rating on Family Dollar stores.

For an analyst ratings summary and ratings history on Dollar General click here. For more ratings news on Dollar General click here.

Shares of Dollar General closed at $68.12 yesterday.

You May Also Be Interested In

• Goldman Sachs on Meta Platforms Inc. (META): 'We expect investors to have an initial negative reaction'
• Alerus Financial Corporation (ALRS) Reports In-Line Q1 EPS
• ProPetro Holding (PUMP) Increases Share Repurchase Authorization to $200 million