Starboard Value LP, an American hedge fund, has reportedly called on Dollar Tree Inc. to sell its Family Dollar business (that currently seems to be underperforming) and propose changing the board. Incidentally, the hedge fund also claimed that it has a stake of close to 1.7% in the U.S. discount retailer, thereby making it the ninth largest shareholder.
In the light of the U.S.-China trade war, investors have been critical about Dollar Tree’s pricing strategies, claiming that the discount store chain must attempt to increase the prices of some of its products to more than a dollar apiece. Starboard Value’s proposal for changing the board may have come on the heels of the hedge fund wanting to capitalize on this criticism, report sources.
Jeffrey Smith, CEO of Starboard, was reportedly quoted stating that they believe Dollar Tree should explore all the alternatives for Family Dollar – even a plausible sale. Smith added that based on the current stock price, Family Dollar is likely to be priced only between $1 billion – $3 billion.
Seemingly, in a statement, Dollar Tree stated that its board had the right balance and did not comment on the sale of Family Dollar or on a change in pricing strategy.
Reliable sources stated that due to antitrust restrictions on buyers and poor financing for retail deals, Dollar Tree sees very little benefit in selling Family Dollar business. It added that even though the multi-price strategy may have worked for other retailers, it has no plans to adopt the same.
Jefferies analysts was reportedly quoted in a note stating that they are in an agreement with Starboard that the customers’ value proposition has diminished, and a broad market test of a multi-price approach would be trailed to assess potential sales and margin benefits.
For the record, Dollar Tree’s purchase of Family Dollar’s 8,000 stores four years ago was intended to beat the competition from Dollar General Corp and Walmart Inc.