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99 Cents Only Stores buyout bid seen as too cheap

March 11, 2011 | 11:24 am

Wall Street’s message to 99 Cents Only Stores Inc.: That can’t be your best price!

Shares of the City of Commerce-based discount retailer zoomed Friday after management and L.A. buyout firm Leonard Green Partners offered $19.09 a share to take the firm private.

99cent The stock was trading at $19.63 at about 11:20 a.m. PST, up $2.95 -- clearly indicating that investors believe the bid, valued at $1.34 billion, would have to be raised, or that a competing offer would surface.

Dollar stores have been a hot retailing niche in recent years as consumers' incomes have been squeezed. Last week, Matthews, N.C.-based Family Dollar Stores Inc. rejected a hostile takeover offer from Trian Fund Management. Trian offered to pay as much as $60 a share for the company, whose shares had been trading at $44.

99 Cents Stores is 33% owned by members of the Schiffer and Gold families, who head the management team. David Gold is the company’s co-founder and chairman. Eric Schiffer, Gold's son-in-law, is chief executive.

The company’s board said it would evaluate management’s proposal.

99 Cents Only Stores earned $60.4 million, or 87 cents a share, on sales of $1.36 billion in fiscal 2010, ended last March.

Patrick McKeever, an analyst who follows the company at MKM Partners, said he believed that the  buyout offer “looks too low” based on his estimate of the company’s asset value, given the 283-store chain’s “strong balance sheet, the saleable nature of its inventory and its valuable portfolio of owned real estate.”

McKeever said that “something in the low-$20s would be fair.”

One money manager quipped: “They could at least have offered $19.99.”

-- Tom Petruno

Photo credit: Irfan Khan / Los Angeles Times