Discount store chain Dollar Tree Inc said it would buy rival Family Dollar Stores Inc for about $8.5 billion, creating North America’s biggest discount retailer.
Shares of Family Dollar, which has been under pressure from activist investor Carl Icahn to sell itself, rose almost 25 percent to $75.50 in premarket trading on Monday. Dollar Tree shares were up 8.8 percent at $59.
Dollar Tree, whose products cost $1 or less, caters to the middle class. While Family Dollar also sells many items priced at $1 or less, it stocks items priced $1-$5 and higher as well.
“This acquisition will extend our reach to lower-income customers and strengthen and diversify our store footprint,” Bob Sasser, Dollar Tree’s Chief Executive said in a statement.
Dollar stores have struggled in a weak U.S. economy and increased competition from large discount chains such as Wal-Mart Stores Inc, which are increasingly chasing penny-pinching consumers by offering more items priced at $1 or less.
Icahn, Family Dollar’s largest shareholder with a 9.4 percent stake, wanted the company to sell itself to Dollar General Corp to help it cope with the competition.
Dollar Tree, which said on Monday its offer had been approved by Family Dollar’s board, will have about 13,000 stores across the United States and Canada once the deal closes.
Dollar General has 11,338 stores in the United States.
