Dollar Stores' Growth Bill Coming Due
Dollar Tree Inc. on Monday said that it would buy Family Dollar Stores Inc. for $8.5 billion. Suddenly, everyone looks like a winner.</br></br>Family Dollar shares shot up 24%, above the hefty premium Dollar Tree is offering. But while buyers' shares often fall on news of hefty acquisitions, Dollar Tree's rose. Even Dollar General Corp., which had been seen as the favorite to buy Family Dollar, saw its stock edge higher initially.</br></br>In sum, by virtue of the deal announcement, the stock market valued the three big publicly traded dollar-store operators by roughly $2 billion more on Monday than on Friday.</br></br>One explanation goes like this: Dollar Tree will run Family Dollar much more effectively. The combined company will have a much bigger footprint, and with the scale that comes from 13,000 U.S. locations, it will be able to keep costs and prices low. That is especially important with Wal-Mart Stores Inc. rolling out smaller-format stores aimed at taking back the market share it has lost to the dollar retailers.</br></br>Meanwhile, although combining Dollar Tree with Family Dollar would present Dollar General with a much bigger rival, it also poses more of a threat to Wal-Mart. So while the environment for Dollar General looks more challenging, the market seems unconcerned. One possibility investors might be entertaining is that Wal-Mart reacts by stepping up its push into smaller stores--by buying Dollar General.