Discount store chain Dollar Tree said it would buy rival Family Dollar Stores for about $8.5 billion, creating North America's biggest discount retailer, according to The Associated Press.
Shares of Family Dollar, which has been under pressure from activist investor Carl Icahn to sell itself, rose almost 25 percent to $75.50 in premarket trading on Monday, the AP reported. Dollar Tree shares were up 8.8 percent at $59.
Dollar Tree, whose products cost $1 or less, caters to the middle class, according to the AP. While Family Dollar also sells many items priced at $1 or less, it stocks items priced $1-$5 and higher as well.
"This acquisition will extend our reach to lower-income customers and strengthen and diversify our store footprint," Bob Sasser, Dollar Tree's Chief Executive said in a statement, the AP reported.
Dollar stores have struggled in a weak economy and increased competition from large discount chains such as Wal-Mart Stores, which are increasingly chasing penny-pinching consumers by offering more items priced at $1 or less, according to the AP. As such, Sasser said the two chains "co-locate really well" and offer complementary merchandise.
Icahn, Family Dollar's largest shareholder with a 9.4 percent stake, wanted the company to sell itself to Dollar General to help it cope with the competition, the AP reported.
Dollar Tree, which said on Monday its offer had been approved by Family Dollar's board, will have about 13,000 stores across the United States and Canada once the deal closes, according to the AP. Dollar General has 11,338 stores in the United States.
The companies did not say if any Dollar Tree or Family Dollar stores would be closed, the AP reported. Dollar Tree will continue to operate under the existing Dollar Tree, Deals, and Dollar Tree Canada store banners.
