FTC allows Sycamore to sell Family Dollar stores to Dollar General

(Adds background on the industry and original sale; expert comment)

By Diane Bartz

WASHINGTON, April 27 (Reuters) - The Federal Trade Commission gave a private equity firm approval on Thursday to sell to Dollar General Corp 323 stores that Sycamore purchased as part of a divestiture package two years ago, the agency said on Thursday.

Sycamore Partners II, LP bought the stores in 2015 when Dollar Tree was forced to sell shops in 35 states to win antitrust approval to buy the Family Dollar chain in what was then a $9.2 billion deal.

Sycamore, which had created Dollar Express LLC to run the business, asked the FTC to approve the stores' transfer to competitor Dollar General in March and said in a document filed with the FTC that the chain could "no longer viably operate as a standalone business."

Sycamore blamed the economic woes on an overall decline in dollar store business, tough competition from Dollar Tree, wage inflation and other costs, according to the document.

Dollar Tree had announced the deal to buy Family Dollar in July 2014, saying it would help it fend off growing competition from Wal-Mart Stores Inc and No.1 U.S. discounter Dollar General.

"It's a lesson for the FTC about the kinds of divestiture buyers that are going to be effective," said Andrea Murino, an antitrust expert with the law firm Goodwin Procter LLP. "I'm sure the FTC would have preferred a very different outcome."

A spokesman for Sycamore declined comment. Dollar General did not immediately respond to a request for comment. (Reporting by Diane Bartz; Editing by Marguerita Choy and James Dalgleish)