The company's $74.50 a share offer in cash and stock for Family Dollar "is unlikely" to get approval from Family Dollar shareholders, FBR's Dutch Fox said in a research note.
Family Dollar's board on Thursday rejected a $78.50 all-cash offer from Dollar General (NYSE: DG) in favor of Dollar Tree's lower bid, citing anti-trust concerns.
Family Dollar traded Friday afternoon at $79.70, up 0.37 percent.
Fox figures Dollar Tree is bound to match or beat Dollar General's offer. "The ball is in Dollar Tree's court and we expect them to respond soon," Fox said.
Fox said Family Dollar's rejection of the Dollar General bid in less than 72 hours suggests "they didn't seriously consider the offer."
But an explicit endorsement of Family's decision by board member Edward Garden of the Trian Fund "gives them a lot of cover," Fox said.
Garden represents activist investor Nelson Peltz on Family Dollar's board. Peltz, along with Carl Icahn helped push for a sale of Family Dollar during recent months.
"In other words 'the Wall Street guy' vouches for the rejection too," Fox said.
Icahn, although no longer a significant stake holder in Family Dollar, recently accused its chief executive Howard R. Levine of seeking to entrench himself by rejecting the Dollar General bid.
Dollar General made a similar accusation in its response to Family Dollar's rejection.
Fox said other alternatives open to Dollar Tree include boosting the cash portion of its offer or going all cash, as well as altering its "synergies" calculation and thus raising its break-up fee demand to as high as $500 million from a current $305 million.
"That would dramatically alter the deal from Dollar General's perspective," Fox said.
Fox's current forecasts for Dollar Tree's financial performance assume it makes an all-cash, $78.50 bid for Family Dollar.
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