Discount chain 99 Cents Only Stores Inc. said Tuesday that it has agreed to be acquired for about $1.6 billion by private equity firm Ares Management LLC and the Canada Pension Plan Investment Board, the latest big investors to bet on the increasingly popular dollar store industry.
The $22 per share cash offer is 7.4 percent higher than the retailer's shares finished at on Monday. But it is a 32 percent premium over the company's closing price on March 10, the day before 99 Cents Only disclosed that it had received an acquisition offer from a different private equity firm.
Dollar store operators like 99 Cents Only have thrived in the weak economy. Shoppers have turned to the discounters for deals on necessities like food and cleaning supplies, and for bargains on toys and other household goods.
99 Cents Only, based in City of Commerce, Calif., operates 289 stores in the Western U.S.
The chain has been the object of acquisition talks for some time. In March, private equity firm Leonard Green & Partners LP and the Schiffer-Gold family, which founded the company, made an offer of $19.09 per share, or about $1.3 billion, for the company. There have also been reports that Apollo Management LP was eyeing the firm.
Investment firms have also shown increasing interest in other dollar store chains. Investor Nelson Peltz's firm Trian Fund Management LP made a $7 billion takeover bid for Family Dollar Stores Inc. in February. The bid was rejected but the company named a Trian executive to its board in September. Another chain, Dollar General Corp., was taken public by private equity firm KKR & Co. LP in 2009.
99 Cents must have its deal approved by its shareholders. The retailer's board is recommending approval. And members of the Schiffer-Gold family, which founded the company, said in a statement that they support the deal. They will hold a significant minority stake after the deal is complete.
The company's CEO Eric Schiffer, Chief Operating Officer Jeff Gold and Executive Vice President Howard Gold will stay in their current leadership roles and will serve as directors. Founder David Gold will be chairman emeritus.
The deal is expected to close in the first quarter of next year.