dollargeneral(CSi) – Dollar General Corp has offered to buy Family Dollar Stores Inc for $8.95 billion, above the  bid by Dollar Tree Inc., that had threatened to unseat the biggest U.S. discount retailer from the peak of a highly competitive market.

Shares of Family Dollar, the number two  U.S. discount chain, rose 5 percent to $79.87, above the offer price of $78.50 per share in cash, suggesting that investors anticipate a bidding war.

A combined company will have nearly 20,000 stores across 46 U.S. states and annual sales in excess of $28 billion.

A merger would  allow Dollar General to retain its Number one  spot among U.S. dollar stores. Dollar Tree’s $8.5 billion bid for Family Dollar, announced on July 28, would have vaulted that merged company ahead of Dollar General.

The U.S. market for dollar stores grew 45.7 percent to $48.2 billion between 2008 and 2013 and is expected to grow 18 percent in the next five years, according to Euromonitor International.

But the growth has recently started slowing due to intense competition.

Combined, the three dollar chains’ annual sales total about $35 billion – less than a tenth of  Wal-Mart’s  $473 billion.