Private Equity Firm Apollo Takes Aim at 99 Cents Only Discounter

Private equity firm Apollo Management was preparing a bid to acquire 99 Cents Only Stores, a 285-store deep-discount chain based in Commerce, Calif., the New York Post reported Monday, citing sources.

The 29-year-old chain's founding family, which controls one-third of the retailer's shares, earlier this year partnered to take the chain private with rival Leonard Green & Partners for $19.09 a share, or $1.3 billion.

But the family, after being wooed by Apollo, signaled in recent days that it was willing to change dance partners and support the highest bidder, sources said. As a result, 99 Cents set a bidding deadline.

"Instead of saying Leonard Green is not paying enough, [99 Cents] is saying [Leonard Green] needs to have its bid ready by mid-September," according to one source.

Leonard Green was surprised by the abrupt end to months of one-on-one talks with the retailer's founding Schiffer-Gold family, the source added.

Nevertheless, Apollo -- headed by billionaire Leon Black -- may not be home free.

Other buyout shops could join a late frenzy for 99 Cents, sources said, as the retailer's no-frills dollar stores have lately become one of the sexiest business models on Wall Street.

While the shaky debt markets cooled most retail buyout speculation of late, 99 Cents "is viewed as countercyclical, better in a tough market," and financing a deal was not expected to be a problem, a source said.

The ubiquitous chain, which has $1.4 billion a year in revenue and no debt, saw same-store sales grow by 5.9 percent in the most recent quarter, fueling a 5.3 percent gain in profits. The average transaction at the California-focused retailer, where more than 50 percent of revenue comes from food and grocery, rose to $9.70.

Last week, Warren Buffett's Berkshire Hathaway disclosed it had made a $48 million investment in Dollar General, the nation's No. 1 super discounter. Its biggest investor was the private equity giant Kohlberg Kravis & Roberts, which took it public in 2009 after acquiring the retailer two years earlier.