More Than A Dollar

In what will likely become a bidding war, Dollar General offered $9.7 billion for Family Dollar Stores, topping the $9.2 billion offer from Dollar Tree. The offer by Dollar General is for $78.50 per share, but Family Dollar stock reached about $81 today, and indication that investors are expecting the bidding to continue. Dollar General is expecting annual synergies of $550 to $600 million beginning in the third year of the merger. Assuming perpetual synergies and a zero NPV acquisition, the company appears to be using a required return from 5.1 to 5.6 percent.