Editor's Note: This is a brief excerpt from Hedgeye Retail Direct note sent every morning to institutional subscribers.
The Dollar Tree (DLTR) show begins…Lights, Camera, Activist!
The New York Post reported that Carl Icahn is buying up shares of DLTR, likely preparing an activist campaign.
This is precisely in-line with the bull case we laid out 3 weeks ago.
The timing is notable as any board recommendations need to be in by year end. Stock didn’t react as much as we might have thought, though some investors are likely waiting for an official announcement or 13F to confirm the report.
One thing to be aware of with Icahn, he is not likely to be the hand holding “let me help you fix FDO over the next 3 years” type of activist. He will be a bulldog repeatedly nipping at management's ankles, likely pushing for an FDO sale and buyback/deleverage, and a looking for quick value creation.
The opportunity might remain for a longer term activist to get involved and push for the breaking of the buck at Dollar Tree. Enjoy the show.
Incidentally, Dollar General (DG) is a likely beneficiary in this situation. Either a competitor is sold to it, or the competitor sees the distraction of a corp governance battle and potentially the distraction of change of ownership. That’s why you saw DG gain about as much market cap as DLTR yesterday.
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