Discount Retailer Fetches a Pretty Penny

Offer for Dollar General represents ''a significant premium and the certainty of cash,'' courtesy of KKR.
Stephen TaubMarch 12, 2007

Buyout firm Kohlberg Kravis Roberts has agreed to acquire discount retailer Dollar General for about $7.3 billion, including the assumption of roughly $380 million of debt.

Reuters pointed out that the transaction is valued at 12 times estimated 2007 cash flow, much higher than the average 8.5 times cash flow typically paid by private equity firms in other retail deals.

Dollar General shareholders will receive $22 in cash for each common share, representing a premium of about 31 percent over the March 9 closing price and about 29 percent over the average closing price during the previous 30 trading days.

On Monday, apparently surprised investors quickly bid up Dollar General’s share price by more than 20 percent.

“We are very pleased to announce a transaction that provides excellent value for our shareholders, representing a significant premium and the certainty of cash,” said chairman and chief executive officer David A. Perdue, in a statement.

Debt financing for the transaction was committed by Goldman Sachs and Lehman Brothers.

Dollar General’s financial advisers are Lazard and Lehman Brothers; its legal counsel is Wachtell, Lipton, Rosen & Katz. For KKR, Goldman Sachs is serving as financial advisor and Simpson Thacher & Bartlett as legal advisor.

Reuters points out that Dollar General is one of KKR’s many retail targets. Last week, reported the wire service, the buyout firm approached British drugstore chain Alliance Boots about an $18.8 billion takeover and joined a group that is considering an offer for British grocery chain J. Sainsbury.