In mid February there were many rumors floating around that Family Dollar would be bought out for $55 to $60 a share and would immediately go private. The takeover offer from Nelson Peltz’s Trian Fund Management LP was rejected recently as Family Dollar feels as if the proposal substantially undervalues the business. A very interesting note is that Family Dollar stock was trading around $42 a share when the rumors began.
The stock price moved up to around $55 before recently retreating to $50 a share after the proposal was denied. Over the last five years Family Dollar has grown assets from $2.23 billion to $2.74 billion while seeing the stock price move up 95.78% during the same period of time. Even though assets have not exploded higher many feel as if Family Dollar is positioned very well if the economy improves or continues to struggle.
If the economy struggles and the unemployment rate remains above 8% for an extended period of time it may be the case that some shoppers scale back and try to save as much money as possible. With Family Dollar offering low cost shopping it will be the case that many of these Americans will take advantage of the low prices at “dollar stores.” If the economy improves and the unemployment rate drops Family Dollar has over $130 million in cash on hand to expand their businesses into more locations.
Currently, Family Dollar has around 6,600 stores nationwide but there are still many areas that have been untapped. The strategy for most brick and mortar retailers is to find areas that are in need of merchandise and get there before any other retailer. This has been the strategy for Family Dollar for years and it has helped them to increase assets at a steady pace. After denying the buyout deal in March of 2011 it will be interesting to see where Family Dollar goes from here. By keeping their balance sheet clean they could receive larger offers.
Author: Rickie Watson
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