Few things are more dramatic than a good hostile takeover attempt. Dollar General has been trying all summer to break up the planned nuptials between Family Dollar and Dollar Tree. They have offered $600 million more for Family Dollar than the preferred suitor. Two things may be preventing Family Dollar from switching partners: 1) concerns that a Dollar General deal would be thwarted by anti-trust regulators, and 2) the Family Dollar CEO would lose his job if Dollar General takes over. Of course, they say the second issue is not on their minds. This makes a great “ripped from the headlines” case (here is a small packet of news articles). There are many directions that the discussion can go which, I think, makes for a nice introductory case to frame the rest of the semester. Here are a few:
- What is an industry? The anti-trust argument assumes that the industry is defined as small discount stores (in other words, Wal-Mart is not really a player).
- Corporate governance: How much should it matter what the Family Dollar CEO’s preferences are?
- Cost advantages: Do any of the players have a cost advantage? At what point do the advantages of scale diminish?
- Industry structure: What, if anything, makes this an attractive industry?
- Competitive dynamics: What will be the next competitive move? What has driven the past moves?
- M&A Synergies: The news packet includes an estimate of the synergies and suggests that Dollar General could create more value. Do you buy this analysis?
- Scenario planning: How might this unfold? To explore this, I have created a simple decision tree and added financials draws from a SeekingAlpha analysis in the news packet. Here is the spreadsheet (which uses the Precision Tree Excel add-in).
Contributed by Russ Coff