Dollar General agrees to $7.3-billion buyout offer

Dollar General Corp., which is in the middle of a restructuring to boost sales and reduce turnover, said Monday that it agreed to go private in a $7.3-billion deal, including debt.

The deal calls for private equity firm Kohlberg Kravis Roberts & Co. to pay $22 a share for Dollar General, which helped drive the discount retailer’s shares up $4.29 to $21.07. The purchase price represents a 31% premium over its closing share price of $16.78 on Friday.

Goodlettsville, Tenn.-based Dollar General has about 64,500 workers and operates 8,260 stores that serve mostly moderate to lower-income shoppers.

Dollar General’s earnings have been sinking recently amid its restructuring plan to eliminate its “pack-away” system of inventory management -- where unsold seasonal items were warehoused until the following year -- and to fend off tough competition from rivals such as Family Dollar Stores Inc.

The retailer swung to a loss in its fiscal third quarter as it took charges for changes in its inventory plan and for store closings. The loss for the quarter that ended Nov. 3 totaled $5.3 million, or 2 cents a share, compared with a profit of $64.4 million, or 20 cents, a year earlier.

“The agreement to be acquired may reflect potential for the stock to lag otherwise following recent earnings weakness ... and projected sluggish 2007 earnings,” analyst J. David Cumberland of Robert W. Baird & Co. said in a research note.

Dollar General shareholders must approve the deal, which would close in the third quarter.

Kohlberg Kravis Roberts will assume $380 million in debt as part of the deal, Dollar General said.

“KKR supports the strategic changes the company has underway and look forward to working with them to accelerate their progress and take advantage of growth opportunities in the market,” the equity firm said.