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(Reuters) Discount
retailer Dollar General, backed by powerful private equity firm Kohlberg Kravis
Roberts, filed for an initial public offering of up to $750 million on
Thursday, according to a regulatory filing.
It could be
one of the largest IPOs of the year and among the biggest exits through a
public stock offering by a private equity firm since the credit crunch sapped
investor appetite for new offerings.
The IPO market
has been improving since the spring, as stock markets have rallied. So far this
year there have been 17 IPOs of companies, raising $4 billion.
The lead
bookrunners on the Dollar General offering will be Citi, Goldman Sachs, Bank of
America Merrill Lynch, J.P. Morgan, as well as KKR itself.
Dollar General
said it expected to pay a special dividend of $200 million to existing
investors prior to the offering. That would include KKR, the pension and endowment
funds that invested in KKR's funds, and others that invested in Dollar General
when KKR struck the $7.3 billion deal to buy the firm in July 2007.
KKR's current
investment in Dollar General is valued about $2 billion, or 1.7 times the cost
of its original investment, according to calculations by Reuters based on
recent documents the company has filed.
KKR bought
Dollar General along with GS Capital Partners, Citi Private Equity, and other
co-investors.
Dollar General
did not specify how much it expects the IPO to yield but said it planned to use
the proceeds to pay down debts and notes.
"It's a
strong cash generator that can perhaps justify such a debt burden," said
Matt Therian, a research analyst with Connecticut-based investment firm
Renaissance Capital.
"Even
though things are looking better, being on the discount end of the retailer
spectrum will help."
By Renaissance
Capital's initial estimates and comparisons to industry peers, the company
could be worth as much as $8 billion to $10 billion.
An IPO of the
retailer had been expected. A source familiar with the situation previously
told Reuters that advanced preparations were in place to take the
Tennessee-based company public, which could happen in the late third quarter or
fourth quarter. Dollar General did not specify timing of the IPO in the filing.
A successful
IPO is particularly important for KKR, which is itself looking to join rival
Blackstone in becoming a publicly traded company through a complex transaction
that involves combining with its Amsterdam-listed fund KKR Private Equity
Investors.
It follows the
successful $745 million IPO of KKR-backed Avago Technologies, one of the
largest and best performing IPOs of the year whose shares closed 18.4 percent
above their IPO price on Thursday.
An IPO of
another KKR-backed firm, hospital company HCA, is also being considered, a
source familiar with the situation previously told Reuters.
Plans for HCA,
however, are unlikely to get off the ground until there is more clarity around
the Obama administration's reform of healthcare, that source said at the time.
In the
prospectus, Dollar General said it had "substantial debt" including a
$2.3 billion senior secured term loan facility which matures on July 6, 2014,
$1.175 billion of senior notes and $655.9 million of senior subordinated notes.
For the
quarter ended May 1, 2009, Dollar General had net sales of $2.8 billion, up
15.6 percent over the year earlier profit, and made a profit of $83 million.
Dollar General
said in its prospectus that it is the largest discount retailer in the United
States by number of stores, with 8,577 stores in 35 states as of July 31, 2009.
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