UPDATE: Bank Of America Moves To No Rating On Family Dollar Stores On Potential Take-Out

In a report published Tuesday, Bank of America analyst Denise Chai moved the rating on Family Dollar Stores (NYSE: FDO) from Underperform to No Rating, and removed the $53.00 price target.

In the report, Bank of America noted, “Following the disclosure after market on Friday that Icahn has taken a 9.4% stake, resulting in press speculation that he may push for a combination with DG, we have conducted a preliminary analysis of potential synergies and estimate that DG could pay up to $80/share for FDO in a cash and debt-finance acquisition, which would be 1) accretive in 2015 and 2) keep DG's leverage to within 3.5x excluding merger synergies and 2.8x including synergies, preserving its investment grade rating.

"We note that DG has not commented on a potential transaction and we are not suggesting interest on their part. While we believe shareholders of both companies could be favorable toward a potential combination at the right price, the main uncertainty in our minds is whether or not DG's management would be willing to undertake such a transaction, given the execution risks involved. In fact, we have never seen a listed retailer within 11,000 stores purchase a troubled retailer with over 8,000 stores.

"DG's shareholder base is also much more fragmented than that of FDO. We note that FDO has just issued a one-year shareholder rights plan which caps ownership of all shareholders to 10% (without paying a control premium for all shares), increasing the uncertainties surrounding the situation.”

Family Dollar Stores closed on Monday at $68.62.