Dollar General is considering bidding for Family Dollar, which could challenge Dollar Tree's $8.5 billion takeover, Bloomberg reported on Tuesday.
The discount retailer is currently evaluating its options after Family Dollar agreed to be acquired by Dollar Tree last week, Bloomberg wrote, after investors Carl Icahn and Nelson Peltz had pushed for a sale. Dollar General had been considered a potential bidder for Family Dollar before last week's announcement.
Read MoreFamily Dollar deal could shake up discount retail
Shares of Dollar General and Family Dollar rallied. Dollar Tree shares, meanwhile, slipped.
Dollar General has reconsidered a bid as it thought the smaller chain "may soon be out of its reach for good," Bloomberg said. The report said that Dollar General CEO Rick Dreiling's impending retirement also may have deterred the company from bidding previously.
Since the July 28 acquisition announcement, Family Dollar stock has consistently traded near or above the $74.50 per share that Dollar Tree agreed to pay.
Read MoreIcahn: Hopeful more potential buyers will surface for Family Dollar
A combined Dollar General and Family Dollar would account for about $28 billion in annual revenue, according to Bloomberg.
Read Bloomberg's full story here.
— By CNBC staff