Dollar Tree Rallies As Activist Investor Starboard Pushes For Big Changes

Shares of discount retailer Dollar Tree, Inc. DLTR rose Monday following the news of involvement of activist investor Starboard Value.

What Happened

In order to unlock value, Dollar Tree has to explore strategic opportunities for its underperforming Family Dollar business and test multiple-price point strategy across its markets, Starboard's Jeffrey Smith said in a letter sent to the company's board.

"We believe Dollar Tree is deeply undervalued in the market today and that there exists an opportunity to create substantial value for shareholders," the statement read.

Starwood owns 1.7 percent of the outstanding shares of Dollar Tree.

The hedge fund said it's of the view that Family Dollar is being ascribed very little value in the market and is a drag on Dollar Tree's valuation multiple. Dollar Tree announced a deal to buy Family Dollar in 2014, with the transaction consummated in July 2015.

Starboard also recommended initiating a "wide-scale market test of a multi-price point strategy at the Dollar Tree banner," moving away from the current $1 price point it has maintained since its founding 30 years ago.

What's Next

Starwood nominated seven directors to Dollar Tree's 12-member board for election at the 2019 annual meeting.

Reacting to Starboard's letter, Dollar Tree said it appreciated Starboard's investment and will evaluate the suggestions.

"The Board and its Nominating and Corporate Governance Committee will evaluate Starboard's nominees in the event Starboard determines to proceed with its nominations (including as to compliance with the Company's nomination requirements) and make a recommendation in due course that it believes will best serve the interests of the Company and its shareholders," the company said in a statement.

Dollar Tree shares were climbing 5.8 percent to $98.28 at time of publication.

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