March 12 (Bloomberg) -- Dollar General Corp., the U.S. retailer with the most stores, agreed to be taken private for $6.9 billion by Kohlberg Kravis Roberts & Co., which plans to speed up store closings to boost profit.

Dollar General, based in Goodlettsville, Tennessee, has 8,260 discount stores in rural towns that sell food, cleaning supplies and household goods. About a third of its products sell for less than $1, and many customers earn a ``small paycheck'' or receive government assistance, the company said.

Profit growth slowed at the 52-year-old chain after it doubled the number of stores in seven years and faced increased competition from Wal-Mart Stores Inc. In November, Dollar General said it would shut more than 400 outlets and slow its expansion. Its shares have fallen four of the last five years.

``Going private gives them a year or two to rebuild their business and invest more aggressively to expand without Wall Street pressure,'' said Burt P. Flickinger III, managing director of Strategic Resource Group, a New York-based consulting company.

The transaction is the biggest leveraged buyout of a U.S. retail company. KKR, which is based in New York, will pay $22 for each share of Dollar General, about 31 percent higher than its closing share price on March 9. KKR will also assume about $380 million in debt, Dollar General said today in a statement.

Shares of Dollar General surged $4.29, or 26 percent, to $21.07 at 4 p.m. in New York Stock Exchange composite trading. It was the biggest increase since at least 1980. Shares of Dollar Tree Stores Inc. climbed 2.8 percent to $36.66 in Nasdaq Stock Market composite trading, and Family Dollar Stores Inc. increased 6.1 percent to $30.42.

Slowing Growth

Dollar General said in November it would slow store openings and focus on remodeling and relocating existing stores. It planned to open 600 stores in the year through Feb. 2, and 300 additional locations in the year ending in 2008. The company posted a third-quarter loss of $5.29 million in December.

``Dollar General has enough of a steady business and is valued low enough that they are a good buy,'' said Colin Symons, who helps manage about $250 million at Pittsburgh-based Symons Capital Management Inc. ``KKR is probably focused on cutting some costs.'' The Pittsburgh-based firm owned 397,525 shares as of December.

KKR paid 30 times net income for Dollar General, according to Bloomberg data. Michaels Stores Inc., which agreed to a $6 billion buyout by Bain Capital LLC and Blackstone Group LP in June, was valued at 25 times earnings.

Standard & Poor's lowered Dollar General's debt rating to BB+, one level below investment grade, from BBB-. Moody's Investors Service placed Dollar General's ratings on review for a possible downgrade.

KKR's Deals

KKR, formed by Henry Kravis and George Roberts, announced four transactions in 2007, including last month's record $45 billion bid with Texas Pacific Group for power-producer TXU Corp. There have been 395 leveraged buyouts announced this year valued at more than $116 billion.

``KKR supports the strategic changes the company has underway and looks forward to working with them to accelerate their progress,'' Mark Semer, a spokesman with Kekst & Co., said in an e-mailed statement. He said KKR's Michael Calbert and other executives declined to be interviewed.

KKR profited from $129 million it invested in 1986 supermarket chain Safeway Inc. in 1986. The firm sold the last of its stake in 2000, generating about $7 billion in profit. The firm is preparing bids for British retailers J Sainsbury Plc, the country's third-biggest grocer, and Alliance Boots Plc, the biggest chain of drugstores, worth a combined $39 billion.

The firm is also part of a group of investors considering a bid for Coles Group Ltd., Australia's second-largest retailer.

Record Purchases

Buyout firms announced a record of more than $700 billion in takeovers last year, according to data compiled by Bloomberg. Investors seeking higher returns than they can get from stocks and bonds poured $432 billion into private-equity funds last year, according to London-based Private Equity Intelligence Ltd.

Such firms are typically attracted by companies that reliably provide cash for its owners. Dollar General generated $555 million of cash from its everyday operations in 2006.

Dollar General's board unanimously approved the agreement. The company expects the transaction to close in the third quarter. Dollar General spokeswoman Tawn Earnest declined to comment beyond the release and said Dollar Chief Executive Officer David Perdue wasn't available for an interview.

Financial Advisers

Goldman Sachs Group Inc. and Lehman Brothers Holdings Inc. have said they will provide debt financing. Goldman is also KKR's financial adviser. Lazard Ltd. and Lehman advised Dollar General.

KKR has invested in 14 retailers in $25.5 billion of transactions over the past 30 years. The firm also was part of a buyout group that acquired Toys ``R'' Us Inc., the second- largest U.S. toy retailer, for $6.6 billion in July 2005.

Dollar General was founded in 1939 as J.L. Turner & Son, a wholesale company. The first store with all items costing no more than $1 opened in 1955, and the company changed its name to Dollar General after its 1968 public offering. The company is scheduled to report fourth-quarter earnings on March 26.

To contact the reporter on this story: Heather Burke in New York at Hburke2@bloomberg.net.

Last Updated: March 12, 2007 16:21 EDT