99 Cents Only Stores (NDN) has received a bid from the family that runs the company and a private equity firm to take the company private for $1.34 billion in cash, though some analysts said the company might be worth more than that.
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The Schiffer-Gold family, which owns about 33% of the company, has teamed up with Leonard Green & Partners L.P. to make a $19.09 per share offer. The bid price represents a 14 percent premium to the company's Thursday closing price.
Shares rose as high as $19.97 in early trading, suggesting investors expect a higher bid.
"It might be on the low side. I can make the case for over $20," said Wall Street Strategies analyst Brian Sozzi.
He said he does not see an alternative bid emerging. He also does not expect the group that disclosed its bid on Friday to raise its offer. "It's tough because it looks like the family is involved here and they have a significant stake," he said.
Wedbush Securities analyst Joan Storms said the price "looks a little low," adding that $20 to $21 would be realistic.
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"There may be a competing offer that may emerge," she said. "Probably another private equity company that specializes in the consumer."
The discount retailer said it will form a special committee of independent directors to consider the proposal.
According to the proposal, the Schiffer-Gold family is prepared to contribute a "substantial portion" of its stock ownership as part of the deal.
The deal would be subject to financing, the company said.
About a third of the company is controlled by the Schiffer-Gold family, which includes the company's chairman David Gold, its chief executive Eric Schiffer and other top executives, according to the company's Web site.
Working with private equity would help 99 Cents Only, Sozzi said. "They get a team at Leonard Green with significant retail experience... and then they ultimately get the balance sheet of Leonard Green to help them more aggressively open stores outside their core markets," he said.
The company has a large presence in California, where it was founded by David Gold and his wife Sherry in 1982. It also has locations in Texas, Nevada and Arizona.
Leonard Green & Partners has been on a retail buying spree in recent months. The buyout firm, along with TPG Capital, bought upscale apparel retailer J.Crew earlier this month for $2.86 billion.
In December, Leonard Green offered to buy fabric and craft products retailer Jo-Ann Stores Inc for about $1.6 billion in cash. Family Dollar Stores Inc (FDO) recently rejected a $7 billion acquisition offer from Nelson Peltz's Trian Group.
Discount stores have become attractive shopping destinations for people hesitating to spend large amounts of cash following several years of financial woes because of unemployment and the recession.
They also have strong cash flow and clean balance sheets. That and their real estate assets have made them attractive buyout targets, especially to private equity firms.
Shares of the company rose as much as 20%to $19.97 on Friday morning, their highest price in more than six years. They were last trading up 17% at $19.50.