Cleary Advises on $9 Billion Family Dollar-Dollar Tree Merger

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By Carla Main

July 8 — “We were the whipping boy of Wall Street,” said Ethan Klingsberg, a partner in the New York office of Cleary Gottlieb Steen & Hamilton LLP, recalling the tough road to closing the merger between the firm's client, Family Dollar Stores Inc., and Dollar Tree Inc.

The yearlong trek to the July 6 closing on the combination of the two discount retailers valued in excess of $9 billion included smoothing out federal antitrust wrinkles, a multistate antitrust settlement, defending a shareholder lawsuit in Delaware Chancery Court and handling a competing takeover bid.

The merger agreement July 27, 2014 and the announcement the next day was followed Aug. 18 by a topping proposal, or an offer of more money for the shares, by Dollar General Corp.

“It became a battle for the next six months,” Klingsberg said.

Thorny Antitrust Issues

The similarity of business models among the three companies resulted in thorny antitrust issues.

“We worked with the state attorneys general and the Federal Trade Commission” for approval, ultimately agreeing to divest some stores, Klingsberg said.

While Dollar General offered a higher share price, its acquisition posed more difficult antitrust issues because of the greater similarity of its stores to those of Family Dollar, according to Klingsberg.

Dollar General had agreed to divest as many as 700 stores to gain antitrust approval of its offer and was asked by the Securities and Exchange Commission to confirm that the FTC had asked it to divest fewer than 1,500 stores, according to a Jan. 9 letter from the SEC to Dollar General obtained by Bloomberg News.

At Wall Street meetings, hedge fund investors didn't always appreciate what the lack of competition might mean at the dollar-store level, according to Klingsberg.

“If they don't like the price, they can just go on Amazon, they'd say,” the lawyer said.

Delaware Litigation

Shareholders sued in Delaware to stop the board from voting to approve the merger, claiming the board breached its fiduciary duty when it failed to accept Dollar General's higher price per share.

The plaintiffs “failed to demonstrate a reasonable probability of success on any of their claims,” the court wrote in its Dec. 19 decision. Family Dollar's board acted reasonably when it decided not to engage in negotiations with Dollar General “because of the antitrust risks involved.”

The Dollar Tree merger was approved by shareholders Jan. 22, and Dollar General withdrew its offer a week later.

An antitrust settlement was reached with attorneys general from 17 states. The FTC approved the merger July 2.

“Dollar Tree recently announced it will sell 330 Family Dollar stores to Sycamore Partners. The sale of these stores will take place within the next 150 days,” Randy Guiler, Dollar Tree vice president for investor relations said in an e-mailed statement. He declined to comment on the antitrust settlement.

Family Dollar shareholders are entitled to $59.60 and 0.2484 of a share of Dollar Tree Inc. common stock for each share of Family Dollar common stock, according to a statement by Dollar Tree.

Legal Teams

The newly combined organization has more than 13,600 stores in 48 states and sales exceeding $19 billion. Dollar Tree plans “to retain and grow both company banners” and make use of the combined real estate portfolio, the company said in the statement.

The Cleary Gottlieb team led by Klingsberg included partners Paul Tiger (corporate), Brian Byrne (antitrust), Meredith Kotler and Mitch Lowenthal (litigation), Nick Grabar (capital markets), Amy Shapiro (leveraged finance), Bill McRae (tax), Steve Horowitz (real estate), Daniel Ilan (intellectual property), counsel Rick Bidstrup (environmental) and Mary Alcock (employee benefits).

Wachtell, Lipton, Rosen & Katz served as legal adviser to Dollar Tree on the deal, Ariane Finkel, a spokeswoman for the firm said in an e-mailed statement. The firm's team, led by corporate partners Daniel A. Neff and Trevor S. Norwitz, included partners Brandon C. Price (corporate), David A. Schwartz (antitrust), David E. Kahan (executive compensation), Eric M. Rosof (restructuring and finance), and T. Eiko Stange (tax).

Dollar General declined to comment on the merger.

With assistance from Manisha Jha in London

To contact the reporter on this story: Carla Main in New York at

To contact the editor responsible for this story: Michael Hytha at

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