Dollar Express ‘personal cash cow’ for owner, lawsuit contends

The failure to make a business of 330 Family Dollar stores divested in the Dollar Tree merger lies not with their former owner but with buyer Sycamore Partners, Dollar Tree said in a lawsuit unsealed Tuesday in Delaware.

In its suit, Dollar Tree contends that Sycamore breached material terms of the parties’ agreements and used Dollar Express as its “personal cash cow” by siphoning off tens of millions of dollars to secure a quick profit soon after acquiring the business. Dollar Tree is seeking injunctive relief and damages in excess of $50 million.

As reported by SN earlier this week, Sycamore has filed a separate suit alleging that Family Dollar acted to deliberately sabotage its plan to rebrand the stores under the Dollar Express banner using predatory pricing and competitive openings that put the stores at a disadvantage.

The stores, which operated under the Family Dollar name in 36 states, were ordered to be divested by the Federal Trade Commission in 2015 as a condition of its approval of Family Dollar’s sale to Dollar Tree. Sycamore bought the stores with the intention of converting them to the Dollar Express banner and agreed to a transition services agreement (TSA) whereby Dollar Tree would provide buying, merchandising and operations support during a transition period. Dollar Express, however, never rebranded any of the stores before agreeing to sell the units to Dollar General earlier this year, claiming it was unable to support the business.

Dollar Tree’s suit alleges that Sycamore violated agreements to rebrand the stores under the agreed-to timeline, owes Dollar Tree more than $50 million in unpaid bills, and failed to inform the company of its financial troubles until March 31, when Sycamore announced plans to liquidate inventories and sell the empty units to Dollar General.

“Under the TSA, Dollar Express was able to use Plaintiffs’ massive purchasing power to acquire inventory at or below plaintiff [Dollar Tree]’s cost, as well as other economies of plaintiffs’ scale,” the lawsuit said. “Sycamore induced plaintiffs to continue to provide these services and benefits so that it could extract maximum value from Dollar Express and ensure a profitable exit from Dollar Express while leaving Dollar Express’s obligations to plaintiffs unpaid.”

The suit alleges that Sycamore committed to fund $50 million to Dollar Express, comprising a $20 million equity contribution and a three-year $30 million debt facility. Dollar Tree however has “seen no evidence that the equity contribution was ever funded or the debt facility ever made available and there is no doubt that the three-year $30 million debt facility is not currently in place.”