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Dollar General, rue21 IPOs offer investors value deals
By Laura Mandaro, MarketWatch
Last Update: 2:13 PM ET Nov 8, 2009
SAN FRANCISCO (MarketWatch) -- Dollar General Corp., a discount chain controlled by a Kohlberg Kravis Roberts & Co. unit, and teen-apparel retailer rue21, inc. are expected to make their initial public offerings late this week.
The deals, worth a combined $865.2 million if they sell at the middle of their anticipated ranges, will be a fresh test of investor appetite for shares in retail companies that focus on value.
"This week's IPOs are both long awaited," said Scott Sweet, senior managing partner at advisory firm IPO Boutique. Checks of brokerage channels suggest "interest will be high on both," he said via email.
Dollar General is expected to sell 34.1 million shares between $21 and $23 each under the symbol "DG" on the New York Stock Exchange. Pricing is likely Thursday, with a sale Friday.
Proceeds from the deal, worth up to $784 million, will go to reduce debt, Dollar General has said in securities filings.
The Goodlettsville, Tenn.-based company is the largest discount retailer in the U.S. by number of stores, with 8,577 in 35 states as of July 31. It sells products usually priced at $10 or less and had $10.5 billion in total sales for its year ended Jan. 30.
Private-equity firm KKR bought Dollar General in 2007 for $7.2 billion. If its IPO shares sell at the midpoint of the expected range, its market value will top that price, at $7.67 billion, according to Renaissance Capital.
Also late next week, rue21 is planning to raise up to $122 million by selling 6.77 million shares for $16 to $18 each under the ticker "rue." Shares are expected to start trading Friday, says IPO Boutique.
The Warrendale, Penn.-based.. company, with 502 stores in 43 states, focuses on trendy apparel for teens at moderate prices.
After the IPO sale, private equity firm Apax Partners will own nearly 58% of rue21's common stock.
The Dollar General and rue21deals will add to the 47 IPOs that have priced in the U.S. this year, according to Renaissance Capital. That's up 12% from last year.
Retail stocks were hard hit at the height of the credit crisis but have come roaring back in recent months.
The S&P 500 retail index RLX has gained 42% this year, topping the broader S&P 500's $SPX 18% gain.
Shares of ultravalue discount stores like Dollar Tree Inc. DLTR outperformed the broad market late last year as investors bet high unemployment and shrinking credit would push more households to shop at these chains.
Those gains have moderated this year. Dollar Tree's shares have gained about 17%. Family Dollar Stores Inc. FDO shares have gained 10%.
Citigroup Inc. C, Goldman Sachs & Co. GS, KKR, Bank of America-Merrill Lynch BAC and J.P. Morgan Chase & Co. JPMare joint book-running managers for the Dollar General IPO.
For rue21, the lead managers are Bank of America-Merrill Lynch, Goldman and J.P. Morgan.
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