What Family Dollar deal means for BJ's

Trian's private-equity bid for FDO could bode well for fellow discounter BJ's Wholesale Club.

By TheStreet Staff Feb 16, 2011 1:34PM

thestreetBy Jeanine Poggi, TheStreet


Today's Family Dollar Stores (FDO) private-equity bid could have big implications for another discounter.


Shares of Family Dollar were surging more than 20% Wednesday on a buyout offer from Nelson Peltz's Trian fund of $55 to $60 a share. Those terms would make a Family Dollar LBO worth up to $7 billion. Trian is the company's largest shareholder, with an 8% stake.


Meanwhile, the deal provides upside to a potential private-equity buyout of BJ's Wholesale Club (BJ), says Janney Capital Markets analyst David Strasser.


"We would argue that over the next five years BJ's will have more growth opportunities geographically, perhaps arguing for an even higher multiple," Strasser wrote in a note. He now predicts a takeout price of $60 a share for BJ's, which is a 22% premium over its current closing price.

After months of speculation, BJ's confirmed on Feb. 3 that it is considering options, including a possible sale. BJ's hired Morgan Stanley (MS) as its financial adviser.


"The company has not made a decision to pursue any specific strategic transaction or other strategic alternative, so there can be no assurance that the exploration of strategic alternatives will result in a sale of the company or in any other transaction," BJ's said. "There is no set timetable for the process."


The announcement comes more than six months after Leonard Green upped its stake in BJ's, igniting takeover chatter. The private-equity firm now holds a 9.5% stake in the company. Leonard Green said that shares of BJ's were undervalued and that it wished to chat with management about ways to enhance shareholder value.

In January, BJ's released a flurry of announcements leading investors to believe a buyout was imminent.


At the time, BJ's said it will shutter five warehouse clubs and restructure its headquarters and some field operations. The restructuring could result in charges of about 78 cents to 82 cents a share in its fourth quarter.


BJ's also revealed several executive shakeups. Robert Eddy, the vice president and director of finance, was named executive vice president and chief financial officer, replacing Frank Forward. Cornel Catuna, the senior vice president of field operations, was also named executive vice president of club operations, replacing Tom Gallagher.


This isn't the first time takeover chatter has emerged for BJ's. The rumors first surfaced back in 2007 after the resignation of CEO Mike Wedge.


Shares of BJ's were rallying 1.3% to $49.81 in midday trading.


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