DG Store Sells for $1.7M with Conjecture of FDO Buyout

The Dollar General store at 3751 S Pantano Road in the Eastern submarket of Tucson sold for $1.7 million ($188 PSF) to DG Pantano & Escalante, LLC a private investment group out of Salt Lake City, UT (Gary Benyon, managing member). The 9,100 sq. ft. building (built 2013) is on 1.07 acres. The seller and builder was DCM Development Company of Tucson (Chris Lechner, managing member).

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[mepr-show rules=”58038″]Dave Hammack of Volk Company in Tucson represented the seller. J.R. Broadbent of Salt Lake City, Utah represented the buyer.

Family Dollar could be an acquisition target according to Credit Suisse analyst Edward Kelly, and an FDO fusion with DG makes “compelling strategic sense.” Kelly believes Dollar General could pay in the $90-to-$100-a-share range for Family Dollar if the FTC approval is granted. This $90-to-$100-a-share range equates to a 24-38 percent premium above FDO’s share price of $72.49 at Monday’s close.

Shares of both Dollar General (NYSE: DG) and Family Dollar (NYSE: FDO) are outperforming the broader equities market as analysts speculate on a likely buyout deal.

Dollar General has more than 10,600 stores, while Family Dollar has almost 8,000. A buyout by Dollar General, which has more than double Family Dollar’s $8.3 billion market value, may cut costs at the smaller company, according to Albert Fried & Co. Credit Suisse Group said Family Dollar could get as much as a 39% premium in a sale. The deal could create a dominate retailer through reduced competition and a move towards a more proactive (rather than reactive) management style. Kelly also sees potential cost and revenue synergies resulting from the acquisition.

Dollar General Shares closed at $55.59 Monday, up 5.5% since buyout speculation began last week.

Private-equity bidders could see an opportunity to make Family Dollar more efficient and turn a greater profit, analysts at Edward Jones & Co. said. The retailer’s profit margins lag behind those at Dollar General Corp., which KKR & Co. bought in 2007 and took public two years later.

Family Dollar rejected a $55-to-$60-a-share offer from Trian in 2011, saying it “substantially” undervalued its business. The retailer also adopted a “poison pill” defense to discourage unsolicited bids at that time. Family Dollar’s board removed the poison pill in November.

Dollar General, a discount retailer based in Goodlettsville, Tenn., emerged from private-equity ownership with higher operating margins than Family Dollar: 10.2% during the past year versus Family Dollar’s 6.6%. Buyout firms may see a similar chance to increase Family Dollar’s efficiency, said an analyst at Edward Jones.

If Family Dollar Chairman and CEO Howard Levine can be persuaded to sell, the company’s shareholders should welcome a merger, said Sachin Shah, arbitrage and special situations analyst at New York-based Albert Fried.

Lechner can be contacted at (520) 888-1212. Hammack can be reached at (520) 326-3200. For Dollar General Information contact (615) 855-5210.[/mepr-show]

[ismember]Sale date was 7/26/2013. Sale price was $1,706,425. Property sold with a 7.6% cap rate. Property was in escrow before construction. [/ismember]