NEW YORK (Reuters) – Discount retailer Dollar General Corp (DG.N) priced shares in its initial public offering at $21 each, at the low end of expectations, in the latest effort by a private equity firm to unload a portfolio company in a market that has become unreceptive to such deals.
Dollar General, which is almost entirely owned by private equity firm Kohlberg Kravis Roberts & Co [KKR.UL], had expected the shares to sell for between $21 and $23 each.
Dollar General and KKR sold a total of 34.1 million shares, yielding gross proceeds of $716.1 million in the IPO.
KKR, the only shareholder to offer stock in the IPO, is selling 11.4 million shares, after which it will still own 89.5 percent of the company, according to its most recent prospectus. KKR bought Dollar General for $7.3 billion in July 2007.
“Private equity firms sell their portion and generally give themselves a large dividend and a lot of people have frowned on that,” said Scott Sweet, a senior managing partner with advisory firm IPO Boutique. “There’s been too much greed.”
Sweet, who credited KKR for bringing management that turned Dollar General around, said the IPO was priced in a manner to increase the odds the shares will rise in their debut on Friday and beat the lackluster performances of many buyout-backed IPOs since September.
The Dollar General IPO is the largest new offering by a retailer recently as investors avoided shares in the beleaguered sector during the recession.
Last month, Vitamin Shoppe Inc (VSI.N), a chain of health supplement stores, went public in a $162 million IPO and priced above expectations in a performance analysts had said would whet appetite for more retail stocks. Vitamin Shoppe has risen 18.5 percent since its debut.
In addition, discount chains have weathered the recession by drawing cash-strapped consumers away from other stores. Same store sales, or sales at stores open for at least a year, at Dollar General were up 8.6 percent over the same period, besting the vast majority of retailers.
The offering follows the successful August IPO by KKR-backed chipmaker Avago Technologies Ltd (AVGO.O) which raised $745 million.
KKR and rivals have sought to tap the IPO market to divest themselves of portfolio companies — firms owned by private equity — and will closely watch Dollar General’s performance on Friday to further gauge the market’s openness to buyout-backed IPOs.
Another of KKR’s portfolio companies, hospital firm HCA, bought with a consortium which included Boston-based Bain Capital, is also being considered for an IPO, a source familiar with the situation previously told Reuters.
Private equity firm Blackstone Group (BX.N) also recently said it is considering IPOs of up to 8 of its portfolio companies.
Dollar General, which is based in Goodlettsville, Tennessee, and operates about 8,577 stores in the United States, is offering 22.7 million shares in the IPO.
Dollar General will use all of its share of the IPO proceeds to pay down debt. It is also planning to pay a fee of about $64 million to KKR and Goldman Sachs & Co (GS.N).
The IPO’s underwriters, led by Citi, Goldman Sachs & Co and KKR, have the option to buy another 5.1 million shares.
Dollar General reported quarterly sales of $2.9 billion for the three months ended July 31, up 11.2 percent over the year earlier results.
Dollar General shares are set to begin trade on Friday on the New York Stock Exchange under the symbol “DG.”
(Reporting by Phil Wahba and Clare Baldwin, additional reporting by Megan Davies; Editing by Phil Berlowitz)