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Activist investor: Family Dollar missed chance to stoke a bidding war

Inside A Family Dollar Store Ahead of Earnings ReportsInside A Family Dollar Store Ahead of Earnings Reports

Family Dollar Stores’ board is facing the ire of a major investor who claims it didn’t try hard enough to get top dollar as two bigger rivals made competitive takeover bids this summer.

Elliott Management, a hedge fund that hold 4.9% of discount chain’s shares, said in a letter to Family Dollar’s leaders on Friday that it would nominate 7 new directors to its 11-person board ahead of the company’s next annual meeting, which is expected to take place in January. The letter accused current directors of lacking the skills and independence to negotiate the best sale price for the company and failing to stoke a bidding war between its two suitors, Dollar Tree (DLTR) and Dollar General (DG).

“This opportunity appears to have been missed,” Mark Levine, Elliott’s senior portfolio manager wrote.

Family Dollar (FDO) responded in a statement that it would review the letter “in due course.”

Elliott took issue with the board rejecting what it described as “Dollar General’s clearly superior” $9.1 billion all-cash offer last month in favor of a bid by smaller rival Dollar Tree, which agreed to pay $8.4 billion in a cash and stock. That deal includes keeping Family Dollar CEO Howard Levine, the son of the company’s founder, involved in the company after the merger.

Elliott said Dollar General has the financial wherewithal to raise its $80-per-share bid even more. It already raised its offer once, last month.

Saying that a Dollar General acquisition would not pass muster with anti-trust regulators, Family Dollar’s board’s rejected the bid and declined to engage in further discussions. But Elliott claims Family Dollar should have provided Dollar General with more information so it could undertake a deeper anti-trust analysis.

For example, Dollar General has offered to sell off 1,500 stores if needed to get through regulatory hurdles.

Elliott, which has $25 billion in assets under management, said it was nominating its own slate so Family’s Dollar’s board would provide Dollar General Corporation “an even playing field in its continuing efforts to acquire the Company at price levels that are clearly superior.”

In June, activist Carl Icahn became Family Dollar’s largest shareholder by taking 9.4% stake in the company and pushed the retailer to look into a deal with Dollar General. He has since sold his shares. Icahn, and others, took issue with Family Dollar’s underperformance vis-à-vis its rivals. It is in the process of closing hundreds of stores and trying to win back its very price-sensitive shoppers put off by its attempts two years ago to sell pricier items. In the fiscal year ended August 30, Family Dollar’s comparable sales fell 2.1%.