Wal-Mart Said to Be Unlikely to Make Bid for Family Dollar

Aug 19, 2014 9:47 am ET

(Updates share prices in eighth paragraph.)

Aug. 19 (Bloomberg) -- Wal-Mart Stores Inc. is unlikely to bid for Family Dollar Stores Inc. after an internal review of the takeover target, people familiar with the situation said.

Wal-Mart determined that Family Dollar wouldn’t be a good fit with its smaller-format stores, according to one of the people, who asked not to be identified because the deliberations were private. The company also hasn’t approached Family Dollar about a bid, another person said.

Family Dollar received a Dollar General Corp. bid yesterday of about $9 billion, excluding debt, topping a Dollar Tree Inc. offer last month for $8.5 billion. Family Dollar’s shares have soared past the current deal price, signaling that investors expect a higher bid to emerge.

If the dollar-store chains consolidate, it could create more competition for Wal-Mart’s push into neighborhood discount stores. Still, acquiring one of the companies would be a break with tradition for Wal-Mart, which doesn’t typically buy rival chains in the U.S.

Brooke Buchanan, a spokeswoman for Bentonville, Arkansas- based Wal-Mart, declined to comment on merger speculation.

“Our focus remains on our business and what we feel works for the company,” she said. “What we’re really focused on is running our business and running it well. We believe we’re in a position that we can serve our customers wherever and whenever they want.”

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In making its counterbid for Family Dollar yesterday, Dollar General is trying to maintain its role as the largest dollar-store chain. The deal would create a company with more than $28 billion in annual revenue and almost 20,000 stores. Dollar General plans to pay $78.50 a share in cash, 5.4 percent more than Dollar Tree’s bid of $74.50 a share in cash and stock. The transaction will eventually generate $550 million to $600 million in cost savings, Dollar General said.

Dollar General shares fell 0.3 percent to $63.93 at 9:43 a.m. in New York after surging 12 percent yesterday in a sign that investors want the company to consolidate the industry. Family Dollar was little changed at $79.87, while Dollar Tree gained 0.7 percent to $54.65. Wal-Mart slid 0.4 percent to $74.21.

Wal-Mart is counting on its smaller-store push to help reignite U.S. growth after six straight quarters of stagnation. The world’s largest retailer also cut its profit forecast last week, saying health-care costs and e-commerce spending would crimp earnings.