Billionaire activist investor Carl Icahn has acquired a 9.4 per cent stake in Family Dollar and is urging the discount retailer to explore ways to boost its value.

Shares of the Matthews, North Carolina, company rose nearly 10 per cent to $66.40 in after-market trading.

In a regulatory disclosure filed on Friday, Icahn said he and his affiliates own nearly 10.7 million shares of Family Dollar. Based on its closing price of $60.53, the stake is worth $647.1 million.

Icahn pointed to some of his prior investments, including CVR Energy, Forest Laboratories, Chesapeake Energy and Biogen Idec, where his tactics have helped turn around those companies' businesses. He said he would seek to discuss strategies with Family Dollar management as well.

Family Dollar officials weren't immediately available for comment.

The news also triggered a rally in the shares of rival Dollar General Corporation amid speculation Icahn could push for a merger with Family Dollar. Shares in Dollar General, the nation's largest dollar-store chain with about 11,100 locations, rose more than 4 per cent after hours.

Family Dollar's low-income shoppers are still struggling as the economic recovery wears on, and its stock is down in the past year while the broader markets are booming. Its revenue and net income for the three months ending March 1 declined, and sales at stores - open at least for a year - slipped 3.8 per cent.

The company said in April it would close 370 underperforming stores.-Reuters