(CN) - Family Dollar shareholders cannot block the company's proposed merger with Dollar Tree, a Delaware court ruled, finding that Dollar General's offer carried antitrust concerns.
A vote on the merger was scheduled for Dec. 23, but shareholders instead decided to delay the vote for a second time, the Wall Street Journal reported.
Family Dollar agreed in July to merge with Dollar Tree, one of its two main competitors in the small-box discount retail market.
The $8.5 billion merger pumped up Family Dollar's stock price from $74.50 per share to $76.
Before the merger can be finalized, however, the Federal Trade Commission must grant antitrust approval.
With Dollar Tree promising to divest as many of its 4,900 retail store as necessary to complete the deal, there is little room for error.
Dollar General, the third major company in the market, upped the ante by offering $80 per share and agreeing to divest up to 1,500 of its stores in order to merge with Family Dollar.
When Family Dollar refused to consider the offer, Dollar General took the offer directly to Family Dollar's shareholders.
They sued Family Dollar's board of directors, seeking an injunction against the merger and claiming that the board breached its fiduciary duty by failing to consider the Dollar General offer.
The Delaware Chancery Court denied the injunction on Dec. 19, stating that the stockholders did not "demonstrate a reasonable probability of success."
"The record shows that the Board was motivated to maximize Family's value and acted reasonably within the constraints of the fiduciary out provision in the merger agreement when it decided not to engage in negotiations with General because of the antitrust risks associated with that proposal," Chancellor Andre Bouchard wrote.
Family Dollar's board had been advised that the Dollar General offer had only a 40 percent chance of approval and that divesting 1,500 stores would not be enough to avoid the antitrust issue, the court found.
Bouchard also said that the Family Dollar shareholders have not suffered irreparable harm.
"Nothing prevents General, which has been undeterred from bidding to acquire Family since the company agreed to the merger, from making an improved offer to address the antitrust risks associated with a Family/General combination if it truly wanted to acquire Family," he wrote.
Family Dollar, based in Charlotte, N.C., operates 8,100 stores. Dollar Tree is based in Chesapeake, Va., and runs 4,900 stores. Dollar General runs 11,300 stores and is based in Tennessee.
Darrell Wickert, Stuart Friedman and Shiva Y. Stein filed the class-action lawsuit on behalf of Family Dollar's shareholders.