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99 Cents Sells; Dollar is Too Pricey: Deals to Watch

Stocks in this article: NDN DTG HTZ FDO CAR BJ WMT TGT

NEW YORK ( TheStreet) -- 99-Cent Only Stores (NDN) said Tuesday that it agreed to be acquired by private equity firm Ares Management and the Canadian Pension Plan for $1.6 billion or $22 a share in cash, a 32% premium to its closing price on March 10 when a separate takeover solicitation was first announced.

The dollar store, founded by the Gold family in 1982, will still have the family-owners as significant minority shareholders after the acquisition, according to a press release announcing the deal. 99-Cent Only Stores shares rose over 4% to 21.40 in early trading, still slightly below the offer price.

In March, private equity firm Leonard Green & Partners offered the Commerce, Calif.,-based dollar store $19.09 a share, in a nearly $1.34 billion deal. Since the first bid, the Gold family and 99-Cent Only Stores formed a special committee to evaluate other potential bids. Meanwhile, shares have consistently traded above the price of the Leonard Green & Partners bid signaling investors anticipated a new buyer might emerge at a higher price. Ares and CPPIB's bid came on the heels of Nelson Peltz's Trian Fund Management's $7.7 billion February bid for Family Dollar Stores (FDO) -- that has recently ended without a takeover.

At $1.6 billion, the deal is the 20th largest private equity buyout offer this year in the retail sector according to data compiled by Bloomberg, and it's a sign that even with volatile markets and a pullback in credit some deals still can get done. With consumer spending recently reported to have fallen 2% in 2010, it's also a signal that low-priced retailers are still acquisition targets after Family Dollar Stores (FDO) and BJ's Wholesale Club (BJ) received private equity bids at prices above $2 billion. Unlike some bids like Peltz's interest in Family Dollar, 99-Cent Only Stores shows that there are still interested sellers.

With the surfacing of Ares and CPPIB as bidders, the 99-Cent only takeover seems to be on better terms than Trian's push for Family Dollar. "I am pleased to announce this agreement as it delivers significant value to our shareholders," said Eric Schiffer, CEO of 99-Cent Only Stores in a press release announcing the deal. Schiffer added, "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." It's a company that is selling at a time of economic uncertainty, which might be a boost to its sales and profit prospects.

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