Ackman's Pershing Square Now Largest Family Dollar Shareholder

Hedge fund manager William Ackman disclosed Thursday that he recently boosted his ownership of Family Dollar Stores Inc. (FDO) by about 5 million shares, making his Pershing Square Capital Management the largest shareholder of the discount retailer.

The move takes his stake to 10.9 million shares, or 8.9% of Family Dollar, and comes on top of a disclosure last month where he reported the 5.8-million-share position he built during the first quarter. He made that disclosure, a day after publicly praising the stock, in an amended Securities and Exchange Commission filing for which he had previously requested and received permission to keep some holdings confidential.

Billionaire Nelson Peltz and his Trian Fund Management LP had been the largest Family Dollar holder, with a roughly 6.5% stake. Trian in February offered to buy the rest of Family Dollar for $55 to $60 a share, which the company rejected.

Family Dollar promptly installed a shareholder rights plan, or poison pill, designed to deter any investor from acquiring 10% or more of the company without the permission of its board of directors. Poison pills typically work by promising to massively dilute the stake of any unwelcome acquisition of stock past a certain threshold, and the Family Dollar pill should similarly limit Ackman's ability to add substantially to his position.

At the conference here last month, Ackman said he likes the Family Dollar business and believes it is poised for a boost to its share price with the prospect of selling to a strategic buyer like larger rival Dollar General Corp. (DG) or a private-equity firm. Smaller competitor 99 Cents Only Stores (NDN) in March received a going-private bid from acquisitive, retail-focused private-equity shop Leonard Green & Partners LP and that company's founding family, which it is still evaluating.

A Trian spokeswoman declined to discuss the Ackman stake increase, and Ackman didn't promptly respond to an email request for comment. A Family Dollar spokesman didn't immediately respond to a telephone message.

"We love them," Ackman said of Peltz and Trian at the conference. "We just don't like the price."

Unlike Peltz, Ackman's stake remains a passive, not an activist one.

As a passive holder, Ackman can't yet have had meaningful conversations with management about Family Dollar's future, nor can he have plans to do so. It also means he has no existing plan to make an offer to acquire the company or unseat any of Family Dollar's current board members, among other things.

Family Dollar stock jumped to an intraday high of $53.45 apiece soon after Ackman disclosed his increased stake, but had since given back some of those gains. Nonetheless, shares were still ahead of levels prior to the Pershing Square filing, up 2.2% at $52.62 each.

-By Maxwell Murphy, Dow Jones Newswires; 212-416-2171; [e-mail]