(Reuters) - U.S. retailer Dollar General Corp is preparing to go hostile as soon as this week in its bid to buy rival Family Dollar Stores, taking its $9.1 billion offer directly to shareholders after being spurned twice by its smaller rival, people familiar with the matter said on Tuesday. 

Dollar General could launch a tender offer for Family Dollar as soon as Wednesday, these people said, asking not to be named because the matter is not public.

Family Dollar, which already has a deal to sell to Dollar Tree Inc for $8.5 billion, has rejected Dollar General's unsolicited approaches citing antitrust risks.

Representatives for Dollar General and Family Dollar both declined to comment.

Dollar General's expected hostile move could lead to a protracted takeover battle involving the nation's three largest U.S. dollar-store operators, at a time when these retailers are facing increasing competition from retailers like Wal-Mart and Target Corp.

In its most recent offer made last week, Dollar General had added a $500 million break-up fee and increased the number of stores it is willing to sell to get antitrust approval to 1,500 from 700.

Dollar General believes these new terms eliminated the antitrust risk for Family Dollar, people familiar with the matter said. But the rival rejected the sweetened bid, saying it still did not give the company sufficient protection.

Family Dollar wants Dollar General to assume the entire risk of a deal getting shot down by U.S. regulators through a so-called "hell or high water" clause before agreeing to negotiate a deal. Such a clause will commit the company to doing whatever it takes to complete the deal, such as carrying out any divestiture that antitrust regulators ask for.

But Dollar General is not willing to offer such an assurance, partly because doing so could leave the retailer at the mercy of the antitrust regulators, who could demand huge divestitures, according to people familiar with the matter.

Dollar General also believes it has already offered more divestitures than is necessary to secure regulatory approval, the people said.

Some shareholders have questioned if Dollar General can find buyers for the stores that regulators would require them to sell. But the people familiar with the matter said there is a long list of potential buyers for such assets, including a handful of small box retailers such as Fred's, Happy Dollar and Five Below.