After a decade-long struggle to integrate Family Dollar, Dollar Tree offloads the chain for $1 billion to focus on its core business. (AP/Charlie Neibergall, file)
- Dollar Tree sells Family Dollar for $1 billion to private equity firms after struggling with integration for a decade.
- CEO Mike Creedon calls the sale a 'major milestone' in Dollar Tree's transformation journey, allowing focus on core business.
- Analysts note challenges for new owners, including pricing issues and customer loyalty concerns at Family Dollar stores.
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Dollar Tree is selling Family Dollar to a pair of private equity firms for $1 billion after a decade of trying to make its acquisition of the bargain chain fit.
Dollar Tree Inc. acquired Family Dollar for more than $8 billion in 2015 after a bidding war with rival Dollar General.
Neil Saunders, managing director of GlobalData, said that after acquiring the rival chain, Dollar Tree struggled with supply chain issues, poor store locations and other operational difficulties.
“Basically, Dollar Tree bit off far more than it could chew,” he said.
Last year Dollar Tree announced that it planned to close hundreds of Family Dollar stores.
Long-Awaited Sale Marks Strategic Shift
Dollar Tree had been scouting options for Family Dollar for a while and said Wednesday that the sale to Brigade Capital Management and Macellum Capital Management will allow it to focus on its core business.
“This is a major milestone in our multiyear transformation journey to help us fully achieve our potential,” said Mike Creedon, who was made permanent chief executive officer of Dollar Tree late last year.
During a conference call, Creedon noted how Dollar Tree and Family Dollar are “two different businesses with limited synergies.” The sale will now allow each one to concentrate on its specific needs, he added.
Truist Securities analyst Scot Ciccarelli agrees.
“Family Dollar turnaround efforts had been consuming massive amounts of both management focus and financial resources and now the company can focus all of its efforts toward growing and optimizing Dollar Tree,” he wrote in a client note.
Related Story: Nearly 200 Shuttered 99 Cents Only Stores to Open as Dollar Tree Locations from Texas to California
Challenges in the Bargain Retail Sector
Bargain chains like Dollar Tree, which have raised some of their prices in recent years, are finding that they have little room to maneuver. Americans have tightened their spending as consumer confidence in the economy slides.
Family Dollar, which moved its headquarters from North Carolina to Chesapeake, Virginia, after the sale to Dollar Tree, will maintain its headquarters in Virginia.
“This transaction presented a unique opportunity to play a key role in reinvigorating an iconic business,” said Jonathan Duskin, CEO and Partner of Macellum.
Saunders said Brigade and Macellum have to fix several issues at Family Dollar, including pricing that isn’t as sharp as many of its rivals and a customer base that isn’t as loyal.
Market Reaction and Future Outlook
The deal is expected to close later in the second quarter.
Shares of Dollar Tree rose 2.8% in midday trading.
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