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Family Dollar Stores adopts poison pill after Icahn stake

June 9, 2014, 1:42 PM UTC
Inside A Family Dollar Store Ahead of Earnings Reports
Shopping carts sit near the entrance of a Family Dollar Stores Inc. location in Sterling, Illinois, U.S., on Tuesday, March 27, 2012. Family Dollar Stores Inc., the second-largest U.S. dollar store chain, is scheduled to report quarterly earnings on Wednesday, March 28, before the opening of U.S. financial markets. Photographer: Daniel Acker/Bloomberg via Getty Images
Photograph by Daniel Acker — Bloomberg via Getty Images

Family Dollar Stores (FDO) disclosed a one-year shareholder-rights plan that will prevent investors from gaining sizable control of the retailer, a move that comes three days after activist investor Carl Icahn disclosed a large stake.

Family Dollar’s shareholder-rights plan has a 10% trigger, and is being used to reduce the ability of any individual or group from gaining sizable control of the company through the open market. A shareholder rights plan, also known as a poison pill, is designed to dilute the value of the stock by flooding the market with additional shares, making it expensive for an investor to acquire a controlling stake.

The action comes after Carl Icahn on Friday disclosed a 9% stake in the discount chain, becoming the retailer’s biggest shareholder and the latest activist investor to take an interest in the struggling company. Icahn, known for pressuring companies to make major changes to their businesses, didn’t detail his plans for Family Dollar, though he called the company’s shares “undervalued.”

Family Dollar responded to Icahn’s investment by saying its board and management team were “open to dialogue” with all shareholders.

Interestingly, one of Family Dollar’s directors voted against the adoption of the shareholder-rights plan. That director was Edward Garden, a founding partner of activist hedge fund Trian Fund Management LP. Garden joined Family Dollar’s board in 2011, when Trian agreed to pull a hostile bid to acquire Family Dollar.

Family Dollar has not weathered economic factors like higher payroll taxes and cuts to Food Stamp programs as well as competitors Dollar General Corp (DG) and Dollar Tree (DLTR) have. The retailer, which caters to many lower-income shoppers living paycheck to paycheck, saw sales at stores open at least a year fall 3.8% in its most recent completed quarter, and in April it said it expected more declines in the current quarter. That compares to increases at Dollar General and Dollar Tree.