(Adds Family Dollar comment, background, updates share price)
June 6 (Reuters) - Hedge fund billionaire Carl Icahn became the largest shareholder in Family Dollar Stores Inc after reporting a 9.39 percent stake in the company on Friday, and said he may seek representation on its board.
Shares of Family Dollar, struggling under declining sales, rose as much as 12 percent in extended trade on Friday.
At 10.69 million shares, Icahn becomes the largest shareholder in Family Dollar. Chief Executive Officer Howard Levine disclosed a 8.18 percent stake with 9.31 million shares last November, according to Thomson Reuters data.
Activist investor Nelson Peltz-led Trian Partners is the third-largest shareholder with a 7.35 percent stake and 8.37 million shares in Family Dollar, according to a March 31 filing.
In 2011, Family Dollar rejected Peltz's bid to buy the company for at least $7 billion.
Icahn, known for taking big stakes in companies and pushing for management change, said he plans to talk to the low-cost store operator about strategies, which may include the exploration of "strategic alternatives". (http://r.reuters.com/nev89v)
"Disclosed a 9 percent position in Family Dollar today. Hope to continue our streak of value enhancement," Icahn posted on Twitter.
Family Dollar said its board and management team were open to dialogue with all shareholders.
"As previously announced, we are taking steps to strengthen our value proposition, increase operational efficiencies and improve financial performance," the company said in a statement on Friday evening.
Icahn told FOX Business he would consider pushing Family Dollar for a merger with rival Dollar General Corp.
Dollar General said it did not comment on market speculation.
Family Dollar, which has trailed rivals such as Tennessee-based Dollar General and Dollar Tree Inc, said in April it would close 370 stores and slow its expansion of new stores.
The North Carolina, Matthews-based retailer, which caters to lower-income shoppers, many of whom live paycheck to paycheck, has also slashed prices in an effort to win customers.
Family Dollar shares rose 10.1 percent to $66.60 in extended trade. They closed at $60.53 on the New York Stock Exchange on Friday and are down 6.8 percent year-to-date.
(Reporting by Shailaja Sharma and Sampad Patnaik in Bangalore; Editing by Maju Samuel, Leslie Adler and Bernard Orr)