Dollar General Inc. CEO Rick Dreiling lamented the outcome of his company's $80 per share hostile bid for Family Dollar Stores Inc. in a Jan. 22 press release, saying that the target stockholders' approval of a sale to Dollar Tree Inc. at $76 a share was a loss not only for them "but also for consumers across the country." But Dreiling may have realized all along that his bid faced long odds. Delaware Chancellor Andre Bouchard suggested in a footnote to a Dec. 19 opinion in a case involving the hostile bid that Dreiling was cagey in how he went about bidding for Family Dollar. The footnote was buried on the 17th page of a 57-page opinion, but it offers a provocative hypothesis. According to testimony from Family Dollar board member George Mahoney Jr., Dreiling and Dollar General board member Michael Calbert declined to make an offer for Family Dollar on June 19, when the company's stock was at $68.14. In Mahoney's telling, Dreiling and Calbert said that "Family Dollar's stock was currently trading at a premium due to speculation that there would eventually be a deal and that Dollar General planned to take steps to end that speculation and thereby depress Family Dollar's stock price by issuing a press release making clear that Dollar General had no present interest in acquiring Family Dollar, privately calling major investors with the same message." As Bouchard observed in the footnote, Dreiling announced the next week that he would retire on May 30, 2015, which some observers thought took Dollar General out of the running as a bidder for Family Dollar. But by then, Family Dollar and Dollar Tree were deep in talks, and the companies announced their deal a month later, on July 28. Three weeks later, Dreiling reversed course by saying he would stay on through May 2016 if his company's hostile bid for Family Dollar succeeded. The waffling was certainly strange. Perhaps, as Family Dollar suspected, Dreiling was trying to put downward pressure on his rival's stock price by feigning retirement. It's also possible that he saw a purchase of Family Dollar as a capstone to his long career in retail. That bid faced long odds because of antitrust issues, as Bouchard detailed in his opinion, but Dollar General's higher offer induced some activists to lobby against a sale of Family Dollar to Dollar Tree. Elliott Management Corp. even nominated a slate of seven directors to Family Dollar's 11-member board in October. That could have pushed Dollar Tree to raise its bid to match Dollar General's offer, but the friendly bidder opted not to get into a bidding war, perhaps because Dollar General's market capitalization is about 50% more than Dollar Tree's, at $21 billion to $14 billion. Instead, Dollar Tree opted to complete on deal certainty, a battleground where it apparently had a distinct advantage and certainly had an important advocate. Edward Garden, the co-founder of hedge fund Trian Fund Management LP, joined Family Dollar's board in 2011 as an activist, but he strongly opposed the Dollar General bid because of its low likelihood of winning antitrust approval from the Federal Trade Commission. In contrast, Dollar Tree's bid encountered minimal FTC resistance, and 89% of the Dollar General shares cast last week were voted in favor of that offer. Companies complain endlessly about activists, but in this situation, the activist on the target's board may have been pivotal in swaying stockholders to follow the board's recommendation. As for Dreiling, he says he'll stay on for one more year.
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