NEW YORK--(BUSINESS WIRE)--Elliott Advisors (UK) Limited (together with funds advised by it, “Elliott”), a significant shareholder of Family Dollar Stores, Inc. (“Family Dollar” or the “Company”) (NYSE: FDO) with a current combined beneficial and economic ownership interest in approximately 4.9% of Family Dollar’s outstanding shares, today announced the delivery of a letter to the Company’s Chairman and CEO, Howard R. Levine, and the Company’s Board of Directors. Elliott also announced that it has nominated a slate of seven highly qualified candidates for election to the Family Dollar Board at the Company’s 2015 Annual Meeting.
The full text of the letter to Mr. Levine and the Board follows:
Dear Mr. Levine and Members of the Board:
Elliott Advisors (UK) Limited (together with funds advised by it, “Elliott”) currently has a combined beneficial and economic ownership interest in approximately 4.9% of the outstanding shares of common stock of Family Dollar Stores, Inc. (“Family Dollar” or the “Company”).
We are writing to inform you that today we nominated a slate of highly-qualified directors to the board of directors of Family Dollar (the “Board”). We took this action in order to protect our interests as one of Family Dollar’s largest shareholders and to ensure that the Board does everything within its power to provide Dollar General Corporation (“Dollar General”) with an even playing field in its continuing efforts to acquire the Company at price levels that are clearly superior to the consideration contemplated in the Company’s current merger agreement (the “Merger Agreement”) with Dollar Tree, Inc. (“Dollar Tree”).
A Suboptimal Strategic Review
While we commend the Board for negotiating a transaction with Dollar Tree which delivers a meaningful premium and a high degree of certainty to shareholders, it is our view that the Company was in a position earlier this year to facilitate a bidding war between two large, well-capitalized strategic acquirers. This opportunity appears to have been missed, and the Company must now seek to maximize value for shareholders with the restrictive covenants and other practical limitations of a merger agreement in place. Furthermore, should Dollar General ultimately be successful in its attempt to acquire the Company, it will be forced to pay a termination fee of approximately $2.68 per Company share – value that in a properly run “comprehensive strategic review” would have gone instead to Family Dollar shareholders.
Our reservations about the process which led to the signing of the Merger Agreement with Dollar Tree have increased in light of the Board’s rejection of Dollar General’s clearly superior $80 per share all-cash proposal on September 2nd, 2014. We are of the firm view that under the terms of the Merger Agreement, the Board could have and should have engaged with Dollar General in order to gain a better understanding of their pricing architecture in aid of a more comprehensive anti-trust analysis. Armed with such an analysis, we believe the Board would have been in a much more informed and advantageous position from which to negotiate a deal that maximizes price and deliverability. We are disappointed that the Board did not pursue this course of action.
Given Dollar General’s ability to pay a significantly higher price than the $80 per share currently on offer, we believe it is incumbent on the Board to take all steps necessary to assess the deliverability of a superior Dollar General proposal. It is our sincere hope that the Board will have a renewed opportunity to do so.
Concerns with the Board’s Expertise and Independence
The events leading up to and since the signing of the Merger Agreement left us concerned that some members of the Board may lack the expertise and/or independence to successfully navigate and negotiate a value maximizing outcome for all shareholders.
While certain members of the Board may have experience relevant to the ongoing strategic process at Family Dollar, this does not appear to be the case for the majority of directors. That, combined with the long average tenure of the Board (and the associated issues regarding independence from management this implies), calls into question whether these individuals constitute the appropriate group to guide the Company through the complex pathway ahead and their ability to act with the best interests of all shareholders in mind.
Elliott is supportive of the Board’s decision in January 2014 to create an independent committee to assess the Company’s strategic alternatives. We do however question the decision to appoint George Mahoney Jr to the committee given that he has been associated with Family Dollar, initially as an employee and subsequently as a member of the Board, since 1976. More generally, Elliott believes that this committee is of limited value to shareholders as long as the remainder of the Board lacks the relevant independence and/or expertise.
Taking Steps to Protect the Interests of All Shareholders
We would like to be clear that nominating directors was not our preferred path. Per the terms of the Company’s Bylaws, shareholders wishing to nominate directors for the 2015 Annual Meeting are required to submit a nomination notice by October 18th, 2014. Unfortunately, the actions of the Board to date in connection with the strategic review process fail to sufficiently demonstrate that the Board has had the best interests of its shareholders in mind. We therefore felt compelled to nominate the seven directors listed below (“The Value Maximizing Slate”) in order to preserve our ability to seek to elect directors at the 2015 Annual Meeting who are both qualified and committed to achieving a value maximizing outcome for shareholders in the ongoing strategic process. Supplementing the Board’s capabilities with these new members can, in our view, only be positive for Family Dollar shareholders and the strategic process underway.
We believe that these director candidates have a breadth and depth of experience that will be certain to add value to the Board in its deliberations and negotiations with Dollar Tree and Dollar General – and that the ultimate result will be a value maximizing outcome for shareholders. Their collective expertise and experience encompasses negotiating public company mergers and acquisitions, handling complex negotiations with multiple parties, dealing with anti-trust authorities in the United States, and navigating corporate governance matters.
In addition to their valuable skill sets, the members of The Value Maximizing Slate are, importantly, truly independent of management and have no actual or perceived conflicts of interest with Family Dollar or its shareholders. Their sole objective, should they become directors of the Company, will be to maximize value for all of the Company’s shareholders.
We sincerely hope that our concerns regarding the strategic review and subsequent sale process are misplaced and that over the coming weeks our efforts turn out to be unnecessary. In the meantime, we stand ready to take any and all steps open to Family Dollar shareholders to ensure our interests are protected, starting by nominating The Value Maximizing Slate. We look forward to continuing our dialogue and welcome any questions directly from any members of the Board.
Senior Portfolio Manager
The Director Nominees on The Value Maximizing Slate:
Fredric Reynolds Former Executive Vice President and Chief
Financial Officer, CBS Corporation
Mr. Reynolds will bring to the Board his substantial experience as a CFO at a major, high-profile firm with a successful track record of managing M&A processes effectively, having been involved in more than 50 such processes over the length of his career. Mr. Reynolds’ work as a director at Mondelez, AOL and Hess brings valuable public company board experience as well as an informed perspective on consumer staples retailing.
Jonathan Macey Professor at Yale Law School
Professor Macey is the Sam Harris Professor of Corporate Law, Corporate Finance and Securities Law at Yale University. Professor Macey’s deep expertise in corporate law and governance will be invaluable to the Family Dollar Board during a time when it is under significant scrutiny regarding the extent to which it is appropriately representing the interests of Family Dollar shareholders.
Ted French Former Executive Vice President and Chief
Financial Officer, Textron Corporation
Mr. French brings 17 years of experience as a CFO at major corporations. At Textron, Mr. French was one of the top executives, responsible for strategic, capital, and operational matters, experience that will bring valuable expertise to the Board. His first-hand experience in negotiating and managing a large-scale merger transaction with complex integration issues as well as significant antitrust hurdles will be particularly helpful.
James Shinehouse Partner at Atlantic Financial Advisory
Mr. Shinehouse’s 25 years of experience as a financial advisor (including as the Global Head of Kroll’s Financial Advisory Group) and chief executive across various businesses handling complex and difficult multi-party negotiations in M&A and restructuring situations will bolster the Board’s expertise and credibility significantly in this area.
Marshall Heinberg Former Head of Investment Banking at
Oppenheimer & Co. Inc.
Mr. Heinberg’s extensive experience as a financial advisor, involving more than 25 years in the investment banking industry and including more than 4 years as head of investment banking at Oppenheimer and more than 6 years as head of US investment banking at CIBC, will enable him to add significantly to the M&A expertise present on the Board.
Mark Levine Senior Portfolio Manager at
Elliott Advisors (UK) Ltd
Mr. Levine has more than 15 years of experience as an investment professional advising various Elliott funds in all manner of public company situations. He brings a wealth of transactional, antitrust and negotiating experience to the Board.
Mark Wills Associate Portfolio Manager at
Elliott Advisors (UK) Ltd
Mr. Wills is a former Merrill Lynch investment banker, where he was involved in a wide range of M&A transactions. He has also spent more than 5 years as an investment professional with a broad range of experience, but a particular focus on public company M&A in the United States and private equity opportunities including in the retail space.
About Elliott Management Corporation
Elliott Management Corporation manages two multi-strategy hedge funds which combined have more than $25 billion of assets under management. Its flagship fund, Elliott Associates, L.P., was founded in 1977, making it one of the oldest hedge funds under continuous management. The Elliott funds' investors include pension plans, sovereign wealth funds, endowments, foundations, funds-of-funds, high net worth individuals and families, and employees of the firm.