Icahn to Family Dollar CEO: Thanks for dinner. Now sell your company, or else.

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

Activist investor Carl Icahn says he enjoyed a lovely dinner with Family Dollar (FDO) CEO Howard Levine on Wednesday night to discuss the retailer’s prospects, but nonetheless wants the executive to put the discount chain up for sale “immediately.”

Icahn, who took a 9.4% stake in Family Dollar earlier this month, said in a letter to Levine, whose father founded the Matthews, North Carolina-based retailer in 1959, that the retailer has consistently underperformed its peers and now faces more intense competition.

“Although we appreciated the cordial nature of our discussion at last night’s dinner, it was apparent that we have a strong difference of opinion as to the future of our company,” Icahn wrote to Levine in a letter filed with U.S. regulators. “We believe that for a number of reasons we discussed last night it is imperative that Family Dollar be put up for sale immediately,” he continued.

And Icahn, Family Dollar’s top investor, threatened to go hostile if he doesn’t get his way. Icahn said he wanted to work “in a friendly and collaborative manner” but at the same time called for three directors of his choosing be added to the board and form a committee to look for prospective buyers. He said he would go straight to shareholders if necessary. A Family Dollar representative did not immediately respond to a request for comment.

“We don’t believe there is any time to waste and don’t wish to wait until the next annual meeting. Therefore, if we cannot achieve this collaboratively, we intend to take this matter directly to shareholders,” Icahn continued. A battle royal could be in the offing: Levine owns 8.2% of Family Dollar shares.

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.

Family Dollar was in many ways the author of its own misery: it misread its customers last year in expanding its selection of higher priced beauty products and raising prices. It is now reversing course, bringing back more items priced at $1, closing 370 unprofitable stores out of 8,100 (it had 6,800 only three years ago), and slowing its expansion of new stores. It is also widening its assortment of food items as U.S. shoppers try to save on their grocery bills.

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