An employee works at a cash register at a Dollar Tree Inc. store in Chicago, Illinois

Daniel Acker/Bloomberg

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Finally, someone is going to make

Dollar Tree

deal with its disastrous acquisition of Family Dollar, and the stock looks better off for it.

After Friday’s close, it was revealed that activist investor Mantle Ridge had acquired a $1.8 billion position in Dollar Tree stock, with the intention of making the company take action to boost its stock price. Dollar Tree shares have gained about 45% during the past five years, while the

S&P 500
has risen around 116%.

Mantle Ridge would like to see Dollar Tree make improvements at Family Dollar, which was acquired in 2015, and change its pricing strategy. Dollar Tree had already announced some changes in recent months, including plans to charge more than $1 for some products. “With an abrupt change in strategy from the DLTR management team mid-quarter, there has been speculationof activist pressure behind the scenes,” writes Oppenheimer analyst Rupesh Parikh.

Parikh noted that Mantle Ridge’s purchases started in mid-September, but they began even earlier than that, according to a person familiar with the situation.

Reports suggest that former Dollar General CEO Rick Dreiling is working with Mantle Ridge, something JPMorgan analyst Matthew Boss calls a “potential game changer.” That probably helps explains why Dollar Tree had gained 11% during the past three months, to the S&P 500’s 4.8% rise, and another 14% at Monday’s close.

“The bottom-line is that this development should mean that DLTR will now be held more accountable for producing consistent results,” writes UBS analyst Michael Lasser. “In this case, the upside potential for the shares is significant.”

Write to Ben Levisohn at [email protected]


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