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NY Post: Carl Icahn Exits Dollar Tree Investment

dollar tree store entrance with company corporate logo in green
(Ken Wolter/Dreamstime)

Wednesday, 09 January 2019 02:46 PM

Investment guru Carl Icahn reportedly recently sold his stake in discount retail chain Dollar Tree Inc.

Icahn, who acquired a 2 percent stake in Dollar Tree last year, is no longer invested in the company, the New York Post reported, citing sources familiar with the matter. The billionaire is said to have acquired the stake when he “thought it was dirt cheap” and sold off his shares as prices climbed into the upper $90 range.

The Post report came just hours after activist hedge fund Starboard Value LP earlier this week called on Dollar Tree to sell its underperforming Family Dollar business and proposed replacing a majority of the board after revealing a stake in the U.S. discount retailer.

Starboard is seeking to capitalize on criticism from some investors and analysts that Dollar Tree should consider raising prices for some products to more than $1, especially in light of the United States' trade row with China that threatens to erode its profitability.

Starboard said on Monday it had built a 1.7 percent stake in Dollar Tree, making it the ninth biggest shareholder. It said that Family Dollar was now worth far less than the $8.5 billion the discount store operator paid for it in 2015.

"We believe Dollar Tree should explore all strategic alternatives for Family Dollar, including a sale of the business," Starboard Chief Executive Officer Jeffrey Smith said in a letter to the company.

"The market is likely only ascribing approximately $1 billion - $3 billion of value to Family Dollar based on the current stock price," Smith said.

In a statement, Dollar Tree said its board had "the right balance" and did not comment on the fund's call for a change in pricing strategy or a sale of Family Dollar, which accounts for more than half of the retailer's 14,000 U.S. stores.

Starboard did not engage with Dollar Tree's management before nominating board directors and issuing its statement, according to two sources close to the company.

Dollar Tree sees little benefit in selling Family Dollar because of antitrust restrictions on possible buyers and the poor state of financing for retail deals, the sources said.

It also has no plans to adopt a multi-price strategy, even if this has worked for other retailers, according to the sources.

Starboard did not respond to requests for comment.

"We are in agreement with Starboard that the customers' value proposition has eroded, and that a broad market test of a multi-price approach be trialed to evaluate potential sales and margin benefits," Jefferies analysts wrote in a note.

Dollar Tree's acquisition of Family Dollar's roughly 8,000 stores four years ago was aimed at fending off growing competition from Walmart Inc and rival discounter Dollar General Corp.

Despite remodeling and sprucing up some stores and expanding its product range, same-store sales growth at Family Dollar has been flat on average for the past two years. That has contributed to a 15 percent fall in Dollar Tree's shares over the past year - while rival Dollar General's stock has risen 14 percent.

"I personally think they should consider selling Family Dollar," said Oppenheimer analyst Rupesh Parikh. Dollar Tree-branded stores drive the vast majority of profitability and the business would be worth a higher multiple alone, Parikh said.

Starboard is one of the industry's most closely watched activist investors and industry data show that the fund tends to be more successful than others in winning board seats.

Starboard proposed replacing seven of the retailer's 12-member board and urged the company to move away from its strict $1 ceiling for Dollar Tree-branded stores.

"The value that Dollar Tree has offered its customers has deteriorated because of the need to fit everything into a $1 price point. Products today are smaller or of lower quality than they were five, ten, and certainly thirty years ago," Smith said.

Starboard said that if the company accepts its demands, Dollar Tree could be valued at $150 per share. Dollar Tree shares closed up 5.5 percent at $97.96, giving the company a market capitalization of about $23 billion.

© 2019 Thomson/Reuters. All rights reserved.

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Investment guru Carl Icahn reportedly recently sold his stake in discount retail chain Dollar Tree Inc.
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Wednesday, 09 January 2019 02:46 PM
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