Investment company-activist Mantle Ridge bought about 6% shares of Dollar Tree and intends to change the pricing policy of the store. On the news, DLTR shares exceeded the historical maximum and rose by 14%, to 129 $.
Who is it
Dollar Tree - a chain of cheap stores, where most of the goods are 1 $. And Mantle Ridge is an active investor.. Such investors seek positive changes in the management or structure of the company, and then sell shares at a profit. "We believe, interaction of the Board of Directors, management and interested investors - the best means to achieve the goal", - Mantle Ridge website says.
One of the goals of Mantle Ridge is to bring about a change in dollar Tree's pricing strategy.. And the retailer has already started to change it.. At the end of September, the company announced, that will expand the range and add goods more expensive than the dollar.
"Due to a sharp change in strategy, there have been suggestions about behind-the-scenes pressure of activists", Oppenheimer said. According to the investment bank, Mantle Ridge began buying up DLTR shares in September, although, Rumored, purchases started even earlier.
Mantle Ridge also plans to increase the profitability of Dollar Tree., which has been falling in recent years. One of the reasons for the fall is the failed purchase of the Family Dollar chain of stores in 2015..
Comparable sales in Family Dollar stores grow more slowly, than in Dollar Tree stores. Family Dollar's operating margin is also lower. To remedy the situation, three years ago, Dollar Tree began to close some stores and even rebrand — change the family dollar sign to Dollar Tree..
"For a very long time, Family Dollar has had poor management.. And there is no magic bullet, to fix it. They have a terrible supply chain and a shortage of goods in stock.", — said then in the investment company Loop Capital.
As a result, since 2015, the financial results of Dollar Tree began to deteriorate., the company lagged behind competitor Dollar General, and the shares went "walking" in the sideways.
Interesting fact. To merge the directors of Family Dollar persuaded another well-known investor-activist Carl Icahn. In June 2014, Icahn bought about 9% shares of a troubled retailer, and three months later sold with a profit of $ 200 million.
What's with the stocks
At the end of September, Dollar Tree shares were worth 85 $, just like five years ago. And after the decision to raise prices and on the latest news, the shares have already risen by 50%. Deutsche Bank believes, that the paper will continue to grow. Investbank raised the target for Dollar Tree shares from 96 to 148 $.
"Many investors see Family Dollar as a structural problem., хотя мы считаем, that a fresh look may be the one, what you need Dollar Tree", - said the bank.