Dollar General: Merger with Family Dollar (FDO) could make sense, but organic growth seems preferable; maintain Buy
MKM Partners notes, DG and FDO are up 6% and 13% (vs. SPX up slightly), respectively, since the 6/6/14 disclosure that Icahn Capital had acquired a 9.4% beneficial ownership interest in FDO, as investors speculate about a possible merger. FDO added another 2% after-hours yesterday in response to a letter sent by Carl Icahn to CEO Howard Levine saying the company should be put up for sale immediately. While firm agreea that merger synergies could be significant, it thinks DG is better off continuing to pursue lower-risk organic growth.