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Howard Levine, chairman/CEO of Family Dollar, sent a 2,000-word letter to shareholders this morning explaining the board's recommendation that they vote for a merger with Dollar Tree and against a merger with Dollar General - even though the Dollar General deal is for hundreds of millions of dollars more.

To boil the content of the letter down, it essentially says that a Dollar General deal will require too many stores to be closed to make the deal workable. An excerpt:

"Family Dollar is in the unique position of receiving feedback from the Federal Trade Commission (“FTC”) staff on the progress of the FTC’s reviews of both the Dollar General proposal and the Dollar Tree merger. At this time, I wanted to provide complete transparency to you regarding the most recent feedback that we have received from the FTC staff, which reaffirms the statements that we have been making for several months now about the inability of the Dollar General proposal to be consummated on the terms proposed by Dollar General and the certainty of the Dollar Tree merger.

"The FTC staff informed Family Dollar and Dollar General on January 10, 2015, that its most recent economic analysis of the Dollar General proposal indicates that 5,850 stores are presumptively problematic, including 2,965 Dollar General stores and 2,885 Family Dollar stores. After eliminating the duplication in the 5,850 figure where both a Family Dollar store and a nearby Dollar General store are on the list, we estimate based on experience with earlier iterations of the FTC staff’s store lists that the current count of stores that the FTC staff views as presumptively problematic is around 3,500 to 4,000 stores. This 3,500 to 4,000 range, while not final, is based on the most current and specific indication received from the FTC staff to date as to the number of divestitures that will ultimately be required by the FTC to permit the Dollar General proposal to be consummated."

And, the letter goes on:

"Dollar General has still offered to divest only up to 1,500 stores and remains committed to the position that no more than 700 stores will be required to be divested. Accordingly, the Family Dollar Board of Directors continues to be of the unanimous view that the current Dollar General proposal is not reasonably likely to be completed on the terms proposed by Dollar General and that discussions with Dollar General are not reasonably expected to lead to a new proposal that is reasonably likely to be completed on its terms."

Naturally, Levine is optimistic about a deal with Dollar Tree:

"The proposed combination of Dollar Tree and Family Dollar would create the leading discount retailer in North America based on number of store locations, operating more than 13,000 stores in 48 states and five Canadian provinces. The proposed merger would also allow the combined company to target a broader range of customers and geographies, leverage complementary merchandise expertise, generate an estimated $300 million of synergy opportunities and is estimated to be accretive to cash EPS within the first year post-closing, excluding one-time costs to achieve synergies. The combined company will also be better positioned to invest in existing and new markets and channels and to grow its store base across multiple brands. Finally, the combined company is expected to generate significant free cash flow, enabling the rapid pay down of debt."
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