NERA’s Role in Dollar Tree’s Acquisition of Family Dollar

The Situation

In July 2014, discount merchandiser Family Dollar Stores, Inc. signed an agreement to be acquired by Dollar Tree, Inc. for $74.50 per share, valuing the company at $9.2 billion. Shortly thereafter, Dollar General Corporation made an unsolicited competing offer for Family Dollar for $78.50 per share and later raised its bid to $80.00 per share. Both deals would be subject to antitrust reviews by the US Federal Trade Commission (FTC). Family Dollar’s Board of Directors had to evaluate the antitrust risk of both deals and make a recommendation to its shareholders between the proposed transactions.

NERA's Role

In early 2014, NERA experts Dr. Timothy Watts and Dr. Ramsey Shehadeh were retained by counsel for Family Dollar to (i) conduct empirical analyses to inform the assessment of the relative antitrust risks for potential merger partners; and (ii) engage with FTC economists on the competitive effects of the transaction. NERA experts used cutting-edge econometric methods to assess how closely Family Dollar, Dollar Tree, and Dollar General competed with each other as well as with other retailers. Those same econometrics informed NERA’s experts’ engagement with FTC economists to translate these results into Gross Upward Pricing Pressure Index (GUPPI) measures for each of the parties’ stores.

The Result

Based on the GUPPI scores, the FTC provided guidance in January 2015 that the Dollar Tree deal would likely require divestitures of approximately 300 stores, while the Dollar General deal would likely require divestitures of between 3,500 and 4,000 stores. Shortly thereafter, Family Dollar’s shareholders approved the Dollar Tree merger and Dollar General withdrew its offer. In July 2015, Dollar Tree reached an agreement with the FTC to divest 330 stores (less than 3% of the parties’ combined locations) and closed the transaction. In a public statement, FTC Commissioner Joshua Wright described the analyses performed by NERA and the FTC’s economists as “important initial steps in applying more sophisticated economic tools in conducting merger analysis.”