June 20 (Bloomberg) -- Billionaire investor Carl Icahn said Family Dollar Stores Inc. should put itself up for sale “immediately” and add three directors that he’s proposing to speed the process.
“An overwhelming majority of the company’s shareholders would be in favor of a sale,” the activist investor wrote in a letter to Chief Executive Officer Howard Levine. The document, included yesterday in a regulatory filing, referred to a dinner meeting the two held the previous evening. “There would be significant interest from strategic and financial buyers who could recognize massive synergies from an acquisition.”
Icahn disclosed earlier this month that he’d amassed a 9.4 percent stake in the discount retailer and planned to seek talks with management. Family Dollar, based in Matthews, North Carolina, responded with a poison pill that limits investors from acquiring more than 10 percent of the company.
Levine was reluctant to sell the company his father founded when another activist, billionaire Nelson Peltz’s Trian Fund Management LP, made a takeover offer in 2011. The bid failed to attract other suitors as Trian intended, and Family Dollar added the firm’s Edward Garden to the board as part of a settlement with the shareholder.
Family Dollar rose as much as 4.1 percent to $70.90 in late trading yesterday after closing in New York at $68.14.
The retailer has been struggling to compete with rival discounters, drugstores and big-box retailers such as Target Corp. and Wal-Mart Stores Inc. To combat slumping sales, Family Dollar embarked on a review of its business this year. As part of its turnaround plan, the company is closing about 370 underperforming stores and opening fewer new ones. It’s also lowering prices in a bid to entice shoppers.
Family Dollar has “consistently underperformed its peers” in same-store sales, total revenue growth, sales per store, sales per square foot, operating margins and capital-structure efficiency, Icahn wrote in the letter, which opened by remarking on the “cordial nature” of the previous night’s discussion.
“Now is a perfect time to sell, given the advantageous stock market and interest rate environment,” Icahn, 78, wrote.
Family Dollar responded to Icahn’s letter yesterday, confirming in a statement that its management team met with him and had a “shared goal of enhancing value.” The company said that while the business review is conducted, it’s taking “immediate, strategic actions as appropriate to improve our performance.”
As an activist investor, Icahn has been an antagonist to management at companies such as Apple Inc., Netflix Inc. and Dell Inc. He hasn’t always been successful. In 2011, he pushed for a sale of bleach maker Clorox Co., whose brands include Glad trash bags and Hidden Valley salad dressing, even offering to backstop the process with his own bid if a buyer wasn’t found.
Clorox rejected his overtures, the highest of which valued the company at $10.7 billion, or $80 a share. Icahn eventually withdrew a proposed slate of directors, saying shareholders wouldn’t support his plan.
Icahn ended an acrimonious battle with EBay Inc. in April, settling to add an independent director and dropping efforts to split off the PayPal payments unit after conversations with EBay CEO John Donahoe. He succeeded in pushing Apple to boost its buybacks and dividend.
Activist investors tend to buy at least 5 percent of a company’s stock and flag their intention to actively engage corporate executives and directors by disclosing their holding in a 13D filing with the U.S. Securities and Exchange Commission.