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    Dollar Tree to Buy Rival Family Dollar

    Discount chain will grow to 13,000 stores following $8.5B deal.

    CHESAPEAKE, Va. –- Dollar Tree Inc. will buy discount store competitor Family Dollar Stores Inc. for $8.5 billion, or $74.50 per share. This will boost Dollar Tree's store count to more than 13,000 locations in the United States and Canada.

    The two companies operate under different models: Dollar Tree sells all items for just $1, while Family Dollar offers a broader price range and product lineup, including some brand-name products. As a result, they "co-locate really well" and offer complimentary merchandise, stated Chesapeake, Va.-based Dollar Tree CEO Bob Sasser.

    Family Dollar, which closed stores and dropped prices in the wake of a slowdown in the dollar store market due to increased competition from larger retailers and lingering effects of the recession, had been conducting a strategic review since this past winter, the Associated Press reported. Company officials did not state whether any stores from either chain would close following the acquisition.

    Dollar Tree will continue to operate the Dollar Tree, Deals and Dollar Tree Canada banners. Family Dollar will continue to operate as its own brand.

    Family Dollar stockholders will receive $59.60 in cash and the equivalent of $14.90 in shares of Dollar Tree for each share they own. Including debt and other costs, the companies estimate the deal will be more than $9 billion.

    "The Dollar Tree/Family Dollar combo certainly shakes up the small-box value space, but it's not entirely unexpected," stated Planet Retail's Sandy Skrovan, research director-U.S. "Underwhelming financials recorded by several value retailers this past year and, more recently, some 'shaky' quarterly comparable-store sales results -- including those of Family Dollar -- suggested possible overexpansion or at least expansion at too aggressive a pace.

    "So it's now a two-horse race with Dollar General and a pumped-up Dollar Tree jockeying for ascendancy in the U.S. value channel. Via this assertive move, Dollar Tree could very well leapfrog long-time market leader Dollar General. The merger also provides additional and more formidable competition for Walmart as it accelerates its own small-box expansion via Walmart Express," Skrovan concluded.

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