Discount giant Dollar Tree is offloading Family Dollar at a bargain basement price, roughly $1 billion, after spending about a decade of unsuccessfully trying to turn around the chain and finally searching for a buyer.
Chesapeake, Virginia-based Dollar Tree on Wednesday said it had reached an agreement to sell Family Dollar to Brigade Capital Management and Macellum Capital Management, activist private equity firms that unsuccessfully tried to take department store retailer Macy's private. The deal is expected to close later in the second quarter, possibly by June.
The sale will mark the end of Dollar Tree's failed effort to bolster Family Dollar's revenue and successfully merge it into its core business. The sale price is a mere fraction of the $9 billion that Dollar Tree paid for the chain in 2015, only to learn many of its stores were underperforming, poorly maintained, and in need of updates.
Dollar Tree's effort to improve Family Dollar's performance "have been hampered by supply chain issues, poor store locations, a proposition that isn’t value-centric enough, and a host of other operational problems," according to Neil Saunders, a retail analyst and managing director at analytics firm GlobalData.
"Basically, Dollar Tree bit off far more than it could chew," Saunders said in a note on Wednesday. "And, to add insult to injury, the amount it paid for Family Dollar was inflated by a mild bidding war with Dollar General. While some progress has been made in turning around the banner, Family Dollar remains a weaker part of the dollar store and value segment. Its pricing isn’t as sharp as many rivals, and its customer base is nowhere near as loyal. Many of the store locations are in areas where competition is present and often getting tougher."
Dollar Tree didn't immediately respond to an email from CoStar News seeking comment on Saunders' remarks.
'Two different businesses'
Dollar Tree also released its fourth-quarter results Wednesday, and on the earnings call where CEO Mike Creedon said that shedding Family Dollar will allow the company to focus on its namesake chain.
"Dollar Tree and Family Dollar are two different businesses with limited synergies, and each is at a very different stage of its journey," Creedon told Wall Street analysts. "Separating them will enable each banner to be led and managed by a dedicated team that can focus exclusively on that banner's distinct needs and on realizing each banner's full potential. Separating will also enable investors to own a business they value more without also having to own a business they value less or that may not fit in their investment profile. It should also make it easier for the market to properly value each business."
In June last year, Dollar Tree announced it was conducting a review of strategic alternatives for Family Dollar. That news came after Dollar Tree said in March 2024 that it planned to close 970 underperforming Family Dollar stores. There are now 7,622 Family Dollar stores.
In a statement Wednesday, Dollar Tree said it had "determined that a sale of Family Dollar to Brigade and Macellum best unlocks value for Dollar Tree shareholders and positions Family Dollar for future success."
In a prepared statement, Creedon said, “Under the experienced, dynamic leadership of Family Dollar President Jason Nordin, and with the financial support of Brigade and Macellum, Family Dollar will be well-positioned for growth as a private company."
Family Dollar's headquarters will remain in Chesapeake.
“This transaction presented a unique opportunity to play a key role in reinvigorating an iconic business," Jonathan Duskin, CEO and partner of Macellum, said in a statement.
But Saunders expressed skepticism.
Family Dollar's "problems will now fall on the shoulders of a consortium of private-equity investors," he said. "While the issues reflect the relatively low price paid for the business — far less than Dollar Tree originally bought it for — they are not easily resolved. Private equity has a habit of playing financial games with retailers for short-term returns. In the case of Family Dollar, that may deliver something of a return, but what’s really needed is an injection of investment and operational discipline to put the business back on track."
Macellum and Brigade didn't immediately respond to an email seeking a comment on Saunders' remarks.
Dollar Tree operated 16,500 stores across 48 states and five Canadian provinces as of Feb. 1, under the brands of Dollar Tree and Family Dollar.
For the record
J.P. Morgan Securities is serving as financial adviser, and Davis Polk & Wardwell is serving as legal adviser to Dollar Tree. Jefferies is serving as lead financial adviser to Brigade and Macellum, and RBC Capital Markets is also serving as financial adviser in connection with the acquisition of Family Dollar. Paul, Weiss, Rifkind, Wharton & Garrison is serving as legal adviser. Wells Fargo, RBC Capital Markets, and WhiteHawk Capital Partners are providing financing for the deal.