Icahn Urges Family Dollar to Seek a Buyer for Itself - Analyst Blog

Market reports reveal that Carl Icahn is compelling Family Dollar Stores Inc. FDO to put itself up for sale, given its disappointing performance amid a tough retail environment. The billionaire investor also demanded that three of his firm's members be added to the company's board to initiate the process soon. In response to this, the company said that it remains committed to improve the operational as well as financial performance and to seek opportunities in the best interests of the shareholders.

Earlier, Carl Icahn had acquired a 9.4% stake in Matthews, NC-based Family Dollar that pushed the discount store retailer to adopt a one-year shareholder right plan — better known as poison pill — to prevent activist investors from completely taking it over. The shareholder right plan will be exercisable only when a person or group acquires 10% of the company's common stock. The poison pill got the support of all the directors, except Edward Garden who did not favor the move.

After taking on bellwethers like Apple Inc. AAPL and eBay Inc. EBAY in the past couple of years, Icahn now targets Family Dollar and is likely to push the company's management to implement strategic changes. There is speculation in the market that Dollar General Corporation DG may be in the race to acquire Family Dollar.

Family Dollar has been in troubled waters for sometime now. The soft economic recovery and mounting competition from other big brick and mortar retailers along with online giants have affected sales and profitability. The company posted a 6.1% decline in sales and a 34% fall in earnings per share for the second quarter of fiscal 2014.

Consequently, Family Dollar announced a number of measures to improve its operational and financial performance. Management intends to reduce prices of 1,000 basic items, optimize its cost structure by reducing headcount and close 370 underperforming outlets. It also plans to be more rational on new store openings to reap higher return on investment.

Notably, the company's cautious stance on store openings is in stark contrast to Dollar General, which is on a store expansion drive. Dollar general intends to open about 700 new stores in fiscal 2014.

Currently, Family Dollar holds a Zacks Rank #4 (Sell), while Dollar General carries a Zacks Rank #3 (Hold).