99 Cents Only Stores, the U.S. discount chain, received a proposal to be taken private by members of the Schiffer-Gold founding family and Leonard Green & Partners LP, in a deal valuing the company at $1.34 billion.
The $19.09-per-share offer represented a 14.4 percent premium on yesterday’s closing price. The City of Commerce, California-based company will consider the proposal, according to a statement today.
Dollar stores have become takeover targets in the U.S. after luring shoppers away from traditional retail chains including Wal-Mart Stores Inc. Family Dollar Stores Inc. rejected an unsolicited bid by Nelson Peltz’s Trian Fund Management LP last week, saying it undervalues its business.
“The dollar store chains are attractive to private equity because they can take on more debt, accelerate store growth and improve operations,” Joseph Feldman, an analyst at Telsey Advisory Group in New York, said today in a telephone interview. “The companies generate consistent cash flow.”
At $19.09 a share, the offer values 99 Cents Only Stores at about eight times the last 12 months’ earnings before interest, taxes, depreciation and amortization. That compares with a median of 9 times Ebitda in seven bids for U.S. discount retailers since 2008. Trian’s offer for Family Dollar was about 10 times Ebitda.
Wal-Mart, the world’s largest retailer, said yesterday it’s considering acquisitions to boost U.S. revenue from smaller stores, as the dollar store industry, led by Dollar General Group, lures shoppers who prefer quicker trips when buying tooth paste, cleaning supplies and packaged foods.
Led by Chief Executive Eric Schiffer, 99 Cents Stores Only, as of Dec. 25, had no debt and cash of $24 million, an increase of 21 percent from a year earlier, according to its third quarter earnings statement Feb. 2. During the period, revenue advanced 1.8 percent to $365.4 million.
Founded in 1982, the retailer operates 210 stores in California as well as outlets in Texas, Arizona and Nevada, according to the statement. The company generates more than half its sales from food and beverages, the company said.
The Schiffer-Gold family owns about 33 percent of the company’s outstanding common shares and planned to use a substantial portion of the stake to take 99 Cents Only Stores private, according to the statement.
99 Cents Only Stores climbed $2.90, or 17 percent, to $19.58 at 4:05 p.m. in New York Stock Exchange composite trading, the biggest increase since June, 2009.