Discount retailer Dollar General late this afternoon filed for its IPO, with a $750 million target and nine listed underwriters (including KKR — so much for worries that it was trying to dis-intermediate Wall Street).
We’ve been expecting this filing for a while, but that doesn’t diminish its importance. Dollar General is a charter member of the buyout boom, getting taken private just 25 months ago by KKR for $7.2 billion. The deal included $2.8 billion in equity from KKR and its co-investors, which the firm recently said had been marked up to approximately $4.75 billion.
In other words, this is considered one of the good ones. Part of this is basic counter-cyclicality. After all, what cash-strapped family doesn’t want 18 rolls of Quilted Northern toilet paper for just $5? But KKR folks also argue that they’ve made significant improvements to the customer experience, including cleaner and better-lit stores (I can’t testify, as there don’t seem to be any branches near Boston).
Dollar General has not yet laid out any terms of the IPO, including its desired stock exchange (neither has KKR for its own New York listing, for that matter). It did say, however, that while it has no plans to pay dividends to its common stockholders “for the foreseeable future,” it would pay a special $200 million dividend to “existing shareholders” prior to the offering. Dollar General also will be required to terminate one of those noxious “management agreements” that will pay out another $50 million to KKR (plus $14 million to Goldman Sachs).
In other words, Dollar General’s equity sponsors will get paid more than a quarter-billion dollars, just for taking the company public. Sure the IPO will help Dollar General reduce its debt burden, but the counter is that the debt burden was largely created by KKR’s buyout in the first place. Guess this is why private equity sometimes can’t lose for winning…
Dollar General reported net sales of $10.46 billion for the year ending January 30, 2009, compared to $9.5 billion the prior year and $9.17 billion two years earlier. Its net income was $108.2 million for the year ending January 30, compared to a $57.9 million loss the year before, and a $137.9 million profit the year before.
In addition to KKR, Dollar General shareholders include Goldman Sachs, Citigroup Capital Partners, CPP Investment Board and Wellington Management Company.