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Dollar General attempts hostile takeover of Family Dollar. What's a hostile takeover?

Dollar General is proposing a hostile take over of Family Dollar after the company continually rejected acquisition offers. Dollar General isn't alone; US companies have attempted nearly $100 billion in hostile takeovers this year alone – a seven-year high. So what is a hostile takeover? 

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Eric Gay/AP/File
Customers exit a Dollar General store, in San Antonio on Sept. 25, 2013. Dollar General is going hostile with its $9.1 billion bid for Family Dollar after repeated rejections of previous offers by its rival. The discount chain said Wednesday Sept. 10, 2014 that it is offering investors of Family Dollar Inc. $80 per share in cash, the same offer that was rejected last week by the company board.

Dollar General (DG) has tried unsuccessfully for weeks to acquire Family Dollar Stores Inc. (FDO), so now it's decided to stop playing nice.

Dollar General, a Goodlettsville, Tenn.-based discount retailer, announced Wednesday that it will attempt a hostile takeover of Family Dollar.  As part of the attempt, the retailer will  offer to buy shares of  the-Matthews, N.C. based Family Dollar off that company's current shareholders at $80 a share, a tender offer worth about $9.1billion. 

"Our offer provides Family Dollar shareholders with significantly greater value than the existing agreement with Dollar Tree," Rick Dreiling, chairman and chief executive of Dollar General, said in a statement. "By taking this step, we are providing all Family Dollar shareholders a voice in this process, and we urge them to tender into our offer."

The offer is an attempt to persuade investors to reject Family Dollar's standing agreement to be bought by Dollar Tree Inc. for $8.5 billion, reached on July 28. Since Dollar Tree and Family Dollar reached the deal, Dollar General has trying to intervene.

Dollar General offered $9.7 billion to buy Family Dollar on August 18, but Family Dollar rejected the deal because of antitrust concerns. On Sept. 2, Dollar General again offered to buy Family Dollar for $9.1 billion, and said that it would sell off 1,500 stores to allay those concerns.  Again, Family Dollar said no.

Now Dollar General is trying to acquire Family Dollar the tough way, through a hostile takeover, which is when one company (Dollar General) takes control of  another company (Family Dollar) through purchasing the company's stock, either on the open market or through an agreement with the company. 

Hostile takeovers usually happen after the board of directors of a company continually rejects a offer to buy the company. The move can be risky, because the acquisition target (Family Dollar, in this case) generally won't share key information with the acquirer (Dollar General, here) that isn't already publicly available. That means the acquiring company could take on problems that it was unaware of, like debt or technical issues with the acquired company. 

Hostile takeovers are making a comeback, according to The New York Times. In May, Pfizer tired to buy pharmaceutical company AstraZeneca for $119 billion:

Hostile and unsolicited deal activity is up sharply this year, according to Thomson Reuters. Even excluding Pfizer’s withdrawn bid for AstraZeneca, nearly $100 billion in hostile offers have been made, accounting for 7 percent of global offer volume. That is the highest amount since the deal boom of 2007, and it is occurring as broader deal volumes are soaring.

One factor driving the increase in hostile activity is greater confidence in the boardroom. With the general economic outlook relatively stable, stock prices riding high and growth in the United States steady, executives are more willing to pursue acquisitions they have long considered.

If the Dollar General-Family Dollar deal goes through, the newly-formed company would have almost 20,000 stores in 46 states with annual sales around $28 billion.

Dollar General's offer is scheduled to end on Oct. 8 at 5 pm.

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