Dollar General presented a $9.7 billion counterbid for Family Dollar after the latter agreed to an $8.5 billion buyout by Dollar Tree last month.
The proposed deal is expected to generate between $550 million to $600 million in cost savings per year starting three years after its completion, according to Dollar General officials.
Dollar General is the largest of the three leading dollar chains, followed by Family Dollar and Dollar Tree. If Family Dollar and Dollar Tree merge, Dollar General would face steep competition from the combined companies, along with Wal-Mart, which is vying to open smaller-format stores.
Rick Dreiling, CEO of Dollar General, plans to remain CEO and chairman until May 2016. Dreiling has expressed interest in keeping his seat as chairman, if he is asked by the board and elected by shareholders, according to officials.