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Two proxy firms back Dollar Tree's bid for Family Dollar

A view of the sign outside the Dollar Tree store in Westminster, Colorado, February 26, 2014. REUTERS/Rick Wilking

By Ramkumar Iyer and Sruthi Ramakrishnan

(Reuters) - Changing their previous stance, two influential proxy advisory firms advised Family Dollar Stores Inc shareholders to vote for the retailer's acquisition by Dollar Tree Inc, saying the deal offered more certainty of closure.

Institutional Shareholder Services said on Wednesday Dollar Tree's proposal was in the best interest of shareholders and was more likely to close as it faces fewer antitrust hurdles.

The proxy advisory firm had asked Family Dollar's shareholders in December to oppose Dollar Tree's $8.5 billion cash-and-stock offer, delay voting on the deal and consider Dollar General Corp's higher cash offer of $9.1 billion.

Dollar Tree has said it would divest as many stores as required to get antitrust approval for the deal, while Dollar General has stuck to its offer to shed up to 1,500 stores.

The U.S. Federal Trade Commission is scrutinizing both offers over worries that a deal could inflate prices at discount stores.

"Dollar General's near-silence on regulatory progress - particularly its failure to meaningfully follow through on its own unforced commitment to provide a meaningful update in December - speaks volumes," ISS said on Wednesday.

Dollar General, the largest U.S. discount retailer, has not provided any major updates on its talks with antitrust regulators after Family Dollar's shareholder meeting to vote on the deal was postponed for the second time on Dec. 23.

"This is the time where they (Dollar General) have to show their cards ... or else Dollar Tree will indeed win the prize," Rahul Sharma, managing director of investment advisory firm Neev Capital, told Reuters.

Further adjournments risked Dollar Tree walking away and there were no "material improvements" in the chances of Dollar General's bid getting antitrust approval, ISS said.

Dollar Tree said in a letter to Family Dollar last week that it was unwilling to agree to further adjournments of the shareholder vote, which is now scheduled for Jan. 22.

Late on Wednesday, proxy advisory firm Glass Lewis & Co also recommended shareholders vote for a merger with Dollar Tree.

"[W]e believe the risk/reward dynamics at play here now favor acceptance of the Dollar Tree merger over either the Dollar General offer or the potential further delay of the Dollar Tree merger," Glass Lewis said in its report.

Dollar General was not immediately available for comment and Dollar Tree declined to comment.

(Editing by Kirti Pandey and Lisa Shumaker)