Dollar General IPO drawing draws investor buzz

By SARAH SKIDMORE

PORTLAND, Ore.

Discount retailer Dollar General is expected to price shares for its initial public offering Thursday and begin trading Friday, betting investors will want to have a hand in the future of frugal.

Dollar General, based in Goodlettsville, Tenn., is one of the nation's largest discount chains with more than 8,500 stores in 35 states. The company sells everything from food to home decor -- usually for less than $10 -- at its no-frills stores.

During the recession, discounters like Dollar General have thrived as shoppers look to them for low-cost deals on a variety of items. The offering is highly anticipated, given the company's recent turnaround, size and well-known name.

"As soon as Dollar General was filed, there was instant buzz," said Scott Sweet, senior managing partner at IPO Boutique.

Dollar General was publicly traded from 1968 until 2007, when it was purchased for $6.9 billion by an investment group that included affiliates of private-equity firm Kohlberg Kravis Roberts & Co. and investment bank Goldman Sachs, among others.

The offering, at a midpoint price, would value the company at nearly $7.5 billion after it is complete.

After the company was acquired, new management cut unprofitable stores and vastly improved its performance. Sweet said Dollar General is in the best shape it has been in for years.

Dollar General's sales grew 10 percent in 2008 and 13 percent in the first half of 2009, according to the filing. Revenue totaled $9.5 billion in 2008. The company has also been steadily expanding its store base and plans to continue to do so for the near future.

Dollar General's profit also grew more than four-fold from the first half of 2008 to the first half of 2009.

The company plans to offer 34.1 million shares of common stock priced between $21 and $23 per share, according to a regulatory filing. The company is offering 22.7 million shares and a sole shareholder will sell 11.4 million shares.

Dollar General will not receive proceeds from stock sold by the shareholder, Buck Holdings, a subsidiary of KKR.

After the transaction is complete, Buck Holdings will be the largest shareholder, owning as much as 90 percent of the outstanding shares.

If underwriters sell more than 34.1 million shares, they have the option to buy up an additional 5.1 million shares from the Buck Holdings.

The company plans to use the proceeds to pay down debt. Dollar General estimates that it will receive net proceeds of $467.8 million from the offering, based on a midpoint of estimated offering price.

Dollar General's offering is the latest in an uptick in IPOs after the market nearly dried up last year. There were only 43 companies completing IPOs in 2008, the slowest year for IPOs in more than 20 years.

Investors shied away from the potentially risky investments but confidence has grown and to date, 48 companies have raised $20.9 billion this year, IPOScoop founder John Fitzgibbon said.

Other notable deals include Hyatt Hotels, Dole Foods and teen retailer Rue21, which is also expected to price its shares Thursday night.

Dollar General will trade on the New York Stock Exchange under the "DG" ticker.