UPDATE: 99 Cents Only Stores Gets $1.36 Billion Buyout Offer

Discount retailer 99 Cents Only Stores (NDN) said it received a $1.37 billion buyout offer from members of the Schiffer/Gold family and private-equity firm Leonard Green & Partners LP, yet another retail foray for Leonard Green that comes soon after larger rival Family Dollar Stores Inc. (FDO) spurned a takeover bid from billionaire Nelson Peltz.

The offer, of $19.09 per 99 Cents Only share, is higher than any share price for the company since 2004, topping by just 2 cents its October high but representing a 14.4% premium to Thursday's close. The stock was 18.4% higher in recent Friday trading at $19.75 per share, perhaps aided by a combination of hopes for a higher offer or competitive bid and covering of positions by short sellers, who held negative bets against more than 7.4 million shares, or more than a tenth of what's outstanding, at the end of last month.

The Schiffer/Gold group is the company's largest shareholder with a 33% stake. David Gold serves as the company's chairman while his son, Jeff Gold, is its president and chief operating officer. Eric Schiffer, the chairman's son-in-law, is the chief executive. The elder Gold founded the company in the early 1980s with his wife, and it has grown to nearly 300 stores, with over 200 in California and the rest in Texas, Arizona and Nevada.

The Schiffer/Gold family is prepared to use a significant chunk of its equity to help finance the transaction. According to a copy of the proposal letter sent to the 99 Cents Only board obtained by Dow Jones Newswires, the family would actually increase its ownership percentage of the company on a pro forma basis through the transaction. Any deal is subject to due diligence and the securing of financing commitments.

A person familiar with the offer said the move to go private represents an attractive proposal to its other shareholders, and will save the company the costs associated with being public in an increasingly competitive atmosphere. Family Dollar and Dollar General Corp. (DG) are looking to expand into 99 Cents Only's California territory, and appear intent on doing it without making a bid for 99 Cents Only, so 99 Cents Only seeks to improve its competitive position without the constraints of having a public shareholder base. Leonard Green has already acquired a position in 99 Cents Only Stores stock, which will be disclosed in a federal filing in coming days, the person added.

According to the proposal, Leonard Green would hire KPMG LLP to perform the accounting due diligence and has retained the law firm of Latham & Watkins LLP. The Schiffer/Gold family hired investment bank Guggenheim Securities LLC and lawyers with Skadden, Arps, Slate, Meagher & Flom LLP to advise it. Guggenheim, a former investment vehicle for the descendants of businessman, arts patron and philanthropist Solomon Guggenheim, is making a push into investment banking and advisory services under the command of former Bear Stearns CEO Alan Schwartz and longtime Goldman Sachs banker Peter Comisar.

The stock of 99 Cents Only traded above $36 a share in 2003 but was below $5.50 apiece five years later as Wall Street first cheered the company's push for growth then soured on its stumbles in the process, most notably with its Texas expansion. A company spokeswoman didn't promptly return a phone call seeking comment.

This deal values 99 Cents Only at a premium to its rivals in terms of a multiple on its total enterprise value to adjusted earnings ratio, the source said.

Dollar stores posted strong earnings during the economic downturn, as consumers flocked to its low-cost offerings. Last month 99 Cents Only reported its fiscal third-quarter profit rose on higher sales.

For Leonard Green, this marks another in a raft of retailers the firm has acquired or shown interest in owning in recent months. The firm recently acquired J. Crew, made a bid for Jo-Ann Stores Inc. (JAS) and last summer disclosed a stake in BJ's Wholesale Club Inc. (BJ) and expressed an interest in potentially taking it private.

Family Dollar earlier this month adopted a poison pill and rejected a takeover by Peltz, who has built large or controlling stakes in many other consumer-related companies, including Wendy's/Arby's Group Inc. (WEN) Kellogg Co. (K).

Other discounters rose, including Family Dollar, Dollar General, Dollar Tree Inc. (DLTR), Big Lots Inc. (BIG) and Fred's Inc. (FRED), with shares of these companies up in the 0.4% to 3.1% range.

-By Maxwell Murphy, Dow Jones Newswires; 212-416-2171; maxwell.murphy@dowjones.com

--Drew FitzGerald contributed to this article.

Jo Ann Stores (NYSE:JAS)
Historical Stock Chart
From Dec 2024 to Jan 2025