Ares, CPPIB pay $1.6bn for 99 Cents Only

Private equity firm Ares Capital and the Canada Pension Plan Investment Board are to acquire discount retail chain 99 Cents Only in a deal valued at $1.6bn.

Ares Capital and CPPIB have offered to buy 99 Cents Only Stores for $22 per share in cash, valuing the company at $1.6 billion. The offer represents a premium of 32 percent to the company’s closing price on March 10, the day before bidding interest became apparent, according to a press release from the company. 

On March 11, the company announced it had received an offer from investment firm Leonard Green & Partners and the company’s founders, valuing the business at $1.3 billion. Media reports suggested that this number was considered too low at the time.

The 99 Cents board formed a special committee to consider buyout proposals using independent financial and legal advisors. The committee has unanimously recommended the Ares and CPPIB offer to the board as “fair and to the best interests of the company.” Shareholders must now vote to approve the transaction, which the board has urged them to do. 

Current owners the Gold/Shiffer family are in favour of the deal, and will continue to hold a minority stake in the business post-buyout. Chief executive Eric Shiffer, president and chief operating officer Jeff Gold and executive vice president Howard Gold will continue these roles and act as directors in the company. 

CPPIB’s private equity portfolio has soared this year, seeing a 40 percent increase in value year on year at its end of year results posted in May 2011. The pension plan has made a number of direct investments this year. In June it invested alongside Allianz Capital Partners and Abi Dhabi Investment Authority in gas transportation business Gassled, in a $3.2 billion deal. It also led a consortium of investors with Terra Firma in an aircraft leasing company AWAS in March, with CPPIB investing $266 million in the business. 

99 Cents Only has 289 stores across the US, mostly located in California. Ares and CPPIB’s investment comes at a time where consumers are increasingly seeking low-cost products and bargains making the discount retail market a key target for private equity firms.