Nelson Peltz's Trian Group Buys 6.6% of Family Dollar

Billionaire investor Nelson Peltz's Trian Group has taken an approximately 6.6% stake in Family Dollar (FDO), according to a Wednesday SEC filing. Shares of the discount retailer jumped 6.9% in early trading.

As of July 27, Trian had purchased 4.95 million shares for $168.7 million (including commissions). In addition, Trian owned options with some 3.8 million underlying shares at an aggregate strike price of $143 million.

In total, the Trian Group holds 8.7 million shares of Family Dollar, representing about 6.58% of the company's outstanding shares. The 4.95 million shares represent approximately 3.73% of Family Dollar's outstanding shares, while the 3.78 million shares underlying the options represent approximately 2.85% of outstanding shares.

Peltz and the funds acquired the shares and options because they believe that the shares are currently undervalued in the market place and represent an attractive investment opportunity, according to the SEC fiiling.

The Trian Group has met with Family Dollar Chairman and CEO Howard Levine to discuss business and strategies to enhance value for the company's shareholders. During these discussions, the Trian Group communicated its view that there is an opportunity to enhance shareholder value by improving the company's operational performance.

In the filing, the Trian Group said it looks forward to working with Family Dollar on operating initiatives such as increasing sales per square foot to peer levels, improving its operating leverage and optimizing the number of new store openings. Discussion also included financial improvements such as better utilization of the retailer's capital structure and significant free-cash flow

Trian said it intends to review its investment on a continuing basis.

In response, Family Dollar affirmed it recently met with representatives of Trian Fund Management, L.P., and that it was interested in hearing their views. However, the company also noted that it has achieved nine consecutive quarters of double-digit earnings per share growth, significantly expanded operating margins and improved inventory productivity. Further, its stock price has appreciated by more than 41% so far this year, compared with a slight decline for the S&P 500 and in the S&P Retail Composite during the same period.

While all of that is true, Family Dollar disappointed investors with a weak outlook in its recent quarterly report.