Dollar General to be acquired by KKR

NEW YORK (CNNMoney.com) -- Dollar General announced Monday that the discount chain has agreed to be acquired by private equity firm Kohlberg Kravis Roberts & Co. L.P. in a deal valued at $7.3 billion, including approximately $380 million of debt.

Under the terms of the agreement, Dollar General (Charts) shareholders will receive $22 in cash for each share of Dollar General common stock, representing a premium of about 31 percent over Dollar General's closing share price of $16.78 on Friday.

According to a company statement, the merger is expected to close in the third quarter of 2007, subject to regulatory approval and approval by Dollar General shareholders. The company said that it board had already approved the deal.

Lazard and Lehman Brothers are advising Dollar General on the deal while Goldman Sachs is advising KKR.

Dollar General is the latest in an expanding list of retail chains that have either recently been acquired and taken private or look could potentially become leveraged buyout (LBO) targets.

Industry experts say two things make the retail sector particularly attractive to cash-rich private equity entities like KKR.

One, the U.S. retail market is saturated with too many stores. As retailers continue to expand, many are cannibalizing sales at their older stores and eroding their profits. This, in turn, has sparked a wave on consolidation, especially among the weaker participants.

Second, analysts say private equity firm favor retailers because they typically are cash flow positive, carry little debt compared to companies in other sectors, and many own their real estate against which firms like KKR can borrow money to finance their takeover and turnaround efforts for the stores.

Goodlettsville, Tenn.-based Dollar General operates more than 8,000 discount stores in about 32 states and competes with Wal-Mart (Charts) discount stores and Family Dollar Stores (Charts).

Chains hurt themselves with too many stores