So much for family ties. After merging with Family Dollar to create a 13,000-store behemoth in 2015, Dollar Tree has been accused of smothering spinoff Dollar Express stores, a chain divestitures that Dollar Tree helped create to satisfy anti-trust concerns at the time of the merger.
As Reuters noted, divestitures are often required when larger mergers have the potential to lead to monopolies. U.S. regulators see it as a way to protect competition without having to file lawsuits that would prevent the merger.
Albertson’s and Safeway had to do it in 2015, selling 168 stores to smaller rival Haggen. Hertz and Dollar Thrifty did it in 2012, and Hertz was required to sell its Advantage Rent-a-Car brand. Like Dollar Express, both divestitures ended in bankruptcy.
The lawsuit against Dollar Tree accuses the behemoth of using confidential information to open new stores near the divested Dollar Express stores, then undercutting prices to drive them out of business. In addition, Dollar Express says its stores were saddled with “underqualified” and “inattentive” managers.
If you ask Dollar Express, its parent basically set it up to fail.
“Dollar Express’s best performing stores experienced significant declines in both sales and profitability,” according to the complaint.
“Dollar Express’s damages, which include the lost prospective value of the acquisition of the stores, may exceed one-half billion dollars, with the ultimate amount of damages to be determined at trial,” Dollar Express said in its complaint.
Dollar Express obtained Federal Trade Commission approval to go out of business in April and is now liquidating its stores, leaving 3,000 employees without a job. Private equity firm Sycamore Partners, which owned the chain, sold the stores to rival Dollar General Corp.
According to Chris Sagers, an antitrust expert at Cleveland-Marshall College of Law, it hurts customers when companies formed from divested assets fail, and litigating these matters puts a massive drain on resources, because well-heeled merger parties simply outspend the agencies.