(Adds details, background, shares)
By Yashaswini Swamynathan
Oct 17 (Reuters) - Activist investor Elliott Advisors UK Ltd nominated seven candidates for election to Family Dollar Stores Inc's board as it looks to push for a sale of the dollar store operator to bigger rival Dollar General Corp.
Dollar General's offer is "clearly superior" to Dollar Tree Inc's bid, Elliott said in a letter to Family Dollar's board and Chief Executive Howard Levine.
Family Dollar, which agreed to sell itself to smaller rival Dollar Tree for a cash-and-stock deal of $8.5 billion, rejected Dollar General's $9.1 billion all-cash bid in September, saying the offer did not address antitrust concerns.
Dollar General's shares rose 1.5 percent in extended trading on Friday, while Family Dollar's shares were up 0.9 percent.
Family Dollar said in a statement that it would review Elliott's letter.
Dollar General officials were not immediately available for comment and an Elliott spokesman declined to comment.
Elliot said Family Dollar missed an opportunity to facilitate a bidding war between the two suitors and the company could have worked around the antitrust concerns it cited for rejecting Dollar General's sweetened bid.
The hedge fund, which holds a stake of about 4.9 percent in Family Dollar, also questioned the company's agreement with Dollar Tree, mainly the $305 million termination fee.
Elliott said if Dollar General acquired the company, it would have to pay a fee of about $2.68 per share to Dollar Tree, which would have gone to Family Dollar's shareholders in a "properly run comprehensive strategic review."
Family Dollar's shares closed at $76.77 on Friday on the New York Stock Exchange, while Dollar General's shares ended at $59.95. Shares of Dollar Tree were little changed in extended trading after closing at $56.58 on the Nasdaq. (Editing by Kirti Pandey)