Saturday, October 15, 2011

99 Cents Only chain agrees to $1.6B buyout offer

LOS ANGELES — 99 Cents Only Stores Inc., a West Coast-based discount chain built along the lines of Dollar General, has agreed to go private in a deal valued at $1.6 billion after months of talks with several groups interested in the company.

The Commerce, Calif., chain agreed to be acquired by Los Angeles private equity firm Ares Management and the Canada Pension Plan Investment Board for $22 a share in cash.

The price is 32 percent higher than the stock’s close on March 10, the day before it announced that it had received a $1.3 billion buyout proposal from Los Angeles investment firm Leonard Green & Partners and 99 Cents Only’s founding family. The market viewed that $19.09-a-share bid as a lowball offer, and investors quickly pushed the stock above that level.

99 Cents Only said the family of company founder David Gold had approved the Ares offer and would continue to hold a minority stake.

Deep-discount chains have been viewed as appealing takeover targets as cash-strapped consumers seeking lower prices and convenience have flocked there for household essentials and some food products.

Dollar General, based in Goodlettsville, Tenn., was also purchased by private equity interests in early 2007, but has since returned to being publicly traded. Dollar General planned to open 625 new stores nationally this year amid strong sales results.

'Significant value'

Chief Executive Eric Schiffer, along with his brothers-in-law Jeff Gold, 99 Cents Only’s president, and Howard Gold, executive vice president, would remain in their positions and serve as directors. David Gold would serve as chairman emeritus.

The agreement “delivers significant value to our shareholders,” Schiffer said in a company statement.

“We have come to know and respect Ares Management and CPPIB through this process, and we believe they will be excellent partners and help us achieve our long-term goals as a company,” he said.

Ares Management also has invested in such businesses as Samsonite, Serta, Simmons Bedding, General Nutrition Centers and Maidenform Brands. The Canada Pension Plan Investment Board invests retirement assets of 17 million Canadians.

“We believe that 99 Cents Only Stores is a franchise company and we look forward to working closely with the company’s management team and dedicated employees to continue to expand the business in order to successfully increase the company’s attractive market position,” said David Kaplan, a senior partner and founding member of Ares Management.

More than half of 99 Cents Only’s sales come from food and beverages, and analysts say it has solid sales per square foot compared to competitors in its niche. 99 Cents Only operates more than 280 stores, mostly in California, with other locations in Texas, Arizona and Nevada.