Trian Management Key in Dollar General’s War With Family Dollar

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NEW YORK ( TheStreet) -- Hedge fund investor Trian Management may be the deal breaker in Dollar General's battle against Family Dollar .

Currently, Dollar General is offering $78.50 a share in cash for Family Dollar and is accusing the company of negotiating in bad faith on a $74.50 cash-and-stock takeover with Dollar Tree in late July. However, Trian Management's deep involvement in Family Dollar's sale process and the firm's support of its merger with Dollar Tree may prove a hurdle Dollar General will find hard to overcome.

Trian Management was given a seat on Family Dollar's board in late 2011, as the discount retailer struggled to keep pace with its closest competitor Dollar General. When Family Dollar formally launched a strategic review in January and hired Morgan Stanley as an adviser, Trian Management executive Ed Garden was included in a four-person board committee to run the review.

Read More: Dollar General's Family Dollar Bid Fails to Impress

Proxy documents released by Family Dollar earlier in August show that Family Dollar did reach out to Dollar General multiple times about a merger, and that the company did significant analysis on antitrust issues involved in a potential deal. As Family Dollar's strategic review progressed, Dollar Tree emerged as an interested buyer who was willing to move expediently toward a deal.

By April 7, Family Dollar and Dollar Tree signed a non-disclosure agreement on a potential deal. That same day, activist investor Carl Icahn began buying Family Dollar shares . Between April and Family Dollar's formal announcement of a merger with Dollar Tree, there has been a significant back-and-forth between the company and its investors, and with prospective buyers such as Dollar General.

Family Dollar's sale process now is being called into question by Dollar General and Icahn. While filings indicate that Family Dollar did reach out to Dollar General, CEO Rick Dreiling said on Monday he was shocked to find out Dollar Tree had been negotiating a merger. On Thursday evening, Dollar General CEO Dreiling said that had the company known Dollar Tree was working on a deal for Family Dollar, it would have acted swiftly.

Family Dollar did say on Thursday that because it had signed a NDA in April, it was prohibited from disclosing the existence of any discussions with Dollar Tree when negotiating with Dollar General in June.

Dollar General's competing $78.50 a share bid for Family Dollar was rejected on Thursday. Analysts, however, believe it would be almost impossible for Dollar General to not know that a merger between the company's two closest competitors was underway by June. Other Dollar General claims also don't fit facts laid out in Family Dollar's proxy.

Family Dollar's CEO Howard Levine has been accused by Dollar General and Icahn of not negotiating in good faith because he wanted to keep his job after the company's sale. While Levine will have an executive and board role in the combined Family Dollar and Dollar Tree, filings show that his role was the last thing negotiated in their merger.