The battle over U.S. retailing's discount aisle escalated Tuesday, as Dollar General Corp. raised its bid for Family Dollar Stores Inc. and warned it could try a hostile takeover if its rival's board doesn't agree to talks.

Dollar General boosted its offer to $80 a share and said it would be willing to divest itself of up to 1,500 stores if required to win antitrust approval, and pay a $500 million fee if it couldn't get a deal past the Federal Trade Commission.

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