There's a dollar store down at the end of the street on which I live. I sometimes shop there. So I've been following the three-way corporate merger drama among Dollar General, Family Dollar, and Dollar Tree with more than merely ideological interest.
In case you've been away on vacation or skipping the business pages of the newspaper, here's a quick summary of the state of play: Back in July, Dollar Tree announced a bid to take over Family Dollar for $74.50 a share in cash and stock, or about $8.5 billion. Last week, Family Dollar rejected an all-cash offer from Dollar General at $78.50 a share, or about $9 billion.
What strikes me about the whole thing is the role that the U.S. government seems to be playing in depriving the owners of Family Dollar of the extra half-billion dollars (though some of that half-billion would go toward paying a "breakup fee" to Dollar Tree).
As a New York Times news article about the situation put it, "Though it may seem strange for a would-be seller to spurn a higher-priced offer," a sale to Dollar General, the market leader, "would pose serious risk of rejection from antitrust regulators."
The Times went on, "The gap between the two companies may not be unbridgeable. Family Dollar is still demanding stronger protections against antitrust risk from its bigger competitor, according to a person briefed on the matter. Among those may be a so-called hell or high water provision that would compel Dollar General to do whatever is necessary, including divesting more stores, to satisfy regulators."
I chuckled at the concept of a "hell or high water provision." But as a customer, I laughed, too, at the idea that government antitrust regulators are needed to protect me from a merger of dollar-store parent companies. What am I being protected against? The risk that the dollar store company will use its newly enlarged market clout to negotiate better terms from its suppliers, thus saving customers like me even more money?
Seriously, the risk to consumers in antitrust regulation seems to be that a firm might get so large it could use its monopoly power to charge consumers extortionately high prices. But the stores don't sell admission for the dollar store experience. They sell merchandise, pretty much all of which is widely available elsewhere. The dollar store at the end of my street sells cleaning supplies — but so do a CVS, a Walgreen's, and a supermarket within walking distance. The dollar store sells gardening supplies, batteries, and lightbulbs — but so do the hardware store across the street and a Home Depot a couple of miles away. Many of the goods are also available online from Amazon or other retailers, or at Walmart or Costco.
One product that the dollar store sells — cigarettes — isn't available at the CVS a block away only because CVS caved to government pressure to stop tobacco sales at drugstores. And anyway, if the government wanted to reduce cigarette prices, the way to do it wouldn't be more aggressive antitrust enforcement against retailers, but a rollback of taxes, which can total $7 or $8 a pack.
If there is some product that a newly merged and enlarged dollar store firm can jack up the prices on, there's little to stop some new dollar store firm from entering the market with lower prices. It's not like cellphones, where there's a limited amount of spectrum bandwith, or like medicine, where drugs have patent protection. The barriers to entry in the dollar store business are low.
It's possible that the whole antitrust issue is just a red herring promoted by Family Dollar management, which, Family Dollar shareholder Carl Icahn suggests, has a better shot at a future role in a deal with Dollar Tree than with Dollar General. But if the government is really spending time and money trying to manage the market for dollar stores, it just shows how impenetrably complex and absurd antitrust regulation has become.
Why, even the sage of Omaha, the sainted Warren Buffett, was caught out earlier this month missing a filing deadline. His company, Berkshire Hathaway, had to pay an $896,000 civil penalty for "failure to comply with the premerger reporting and waiting requirements of the Hart-Scott-Rodino Act," a 1976 antitrust law.
If there's a role for the government in the dollar store business, it involves guarding the value of the dollar itself. That's a responsibility that Congress is given in the Constitution, and it is one that it has failed so miserably at that most of the items for sale at the "dollar store" cost more than a dollar. In other words, if there are to be any regulators concerned with the prices at the dollar store, the ones who should be on their toes are the ones at the Federal Reserve, not the antitrust division of the Department of Justice or the Federal Trade Commission.