Thursday, May 19, 2011

Big Lots Decides Not to Go Through With IPO

Wall Street Journal
By Gina Chon and Anupreeta Das


Discount retail chain Big Lots Inc. has decided not to sell itself after bids from private equity firms came in below the company's expectations, people familiar with the matter said.

Big Lots had received interest from several buyout firms earlier this year, following which it decided to explore a sale, the people said. Two groups of private-equity firms—Bain Capital and TPG Capital, and Thomas H. Lee Partners and Advent International—had put in final bids for the discount retailer, they added.

But neither group was able to offer a price that met the expectations of Big Lots executives, people familiar with the matter said. The buyers weren't willing to increase their offers, partly out of concern over Big Lots' growth prospects because it hasn't performed as well as dollar stores as the economy stabilized, the people said.

Big Lots representatives couldn't immediately be reached for comment.

While financing terms are still attractive for buyout firms and they need to put their cash to work, private equity executives have said sale prices for many companies have become too expensive and they don't want to overpay for an asset.

Big Lots shares closed at $37.74 Wednesday, giving it a market capitalization of $2.8 billion. Some Big Lots investors hoped the company could sell for a price in the mid $40s a share, and some analysts expected an even higher sale price.

The company's shares have risen roughly 35% since news emerged of a potential sale in February. But in recent days, the stock had given up some of those gains as investors grew discouraged that a deal might be reached.

Big Lots first quarter sales for 2011 totaled $1.2 billion, a drop of 0.5% from the first quarter of 2010. Big Lots Chief Executive Steve Fishman attributed the decrease in sales to the bad winter weather and noted that stores in the southern region performed well.

Founded in 1967, Columbus, Ohio-based Big Lots sells a variety of products —from cans of tuna to furniture to Christmas décor—through more than 1,400 stores around the country. The closeout retailer competes with discounters such as Wal-Mart Stores Inc. and Family Dollar Stores Inc. for bargain-hunting customers.

Other discount stores, such as 99 Cents Only Stores Inc. and Family Dollar, have also attracted the attention of potential suitors. Leonard Green Partners made a $1.3 billion bid for 99 Cents while activist investor Nelson Peltz's Trian fund Management LP put in a more than $7 billion bid for Family Dollar, which was rejected.