Why Jefferies Cut Family Dollar To Hold As Potential Merger Approaches

In a report published Friday morning, Jefferies downgraded the stock of Family Dollar Stores, Inc. FDO from Buy to Hold, and trimmed its price target from $85 to $76, leaving almost no space for upside.

According to the report, the research firms expects no more bids from Dollar General Corporation DG, and sees the proposed merger –to be approved or rejected next week- highly likely at a price of around $76.

Related Topic: Barclays Says Family Dollar Merger Delay Is 'Harmful'

The analysts noted: “With its release today, DG did not increase their store divestiture commitment or purchase price, effectively bowing out of the process as FTC divestiture requirements appear too high.”

They then explained: “It would have been imprudent to commit to a much higher number of store divestitures to engage FDO with only hopes of talking the FTC down. While we are disappointed, we believe this was the right decision for DG. However, with DG out of the picture, we don’t expect any higher bids for FDO.”