Dollar General is jumping into the battle to buy rival Family Dollar.

The Goodlettsville-based retailer announced today that it has offered to buy the discount retailer for $9.7 billion, an all-cash offer valued at $78.50 per share.

The deal is substantially higher than Dollar Tree's offer late last month of $8.5 billion. Dollar General had long been rumored as a potential bidder for Family Dollar, but the company had often said that it preferred organic growth to a major acquisition.

Still, in a letter to Family Dollar's board of directors, Dollar General said a deal would "create the preeminent small-box retailer in the U.S."

The resulting company would have 20,000 stores in 46 states with sales exceeding $28 billion and more than 160,000 employees.

"For Family Dollar shareholders, our proposal is financially superior to the current transaction agreement with Dollar Tree and would provide Family Dollar shareholders with a substantial premium and immediate liquidity for their shares," said Rick Dreiling, Dollar General's Chairman and CEO in a statement.

Dollar General says the deal makes sense because of the chains' complementary business models. While Dollar General and Family Dollar are both discount stores, Dollar Tree, meanwhile, is a $1-per-item retailer.

Dollar General said the deal would also allow the combined companies to save between $500 million to $600 million in cost savings over three years, because of the companies' combined synergies.

If the deal were approved and accepted, Dollar General CEO Rick Dreiling will postpone his previously-announced retirement and remain in the role of chairman and CEO of the combined company until May 2016.

Goldman Sachs and Citigroup Global Markets Inc. have agreed to provide financing for the deal. The financing includes a $305 million termination fee payable to Dollar Tree in the event Family Dollar terminates the existing merger agreement to enter into a merger agreement with Dollar General.

Dollar General says it has conducted "significant" economic and antitrust analysis and is confident it can quickly and effectively address any potential antitrust issues.

Dollar General said it plans to sell up to 700 retail stores in order to achieve the requisite approvals from federal regulators.