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Dollar General is going private

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NASHVILLE, Tenn. — Dollar General, which is in the middle of a restructuring to boost sales and reduce turnover, said Monday that it agreed to go private in a $6.9 billion deal.

The deal calls for private-equity firm Kohlberg Kravis Roberts & Co. to pay $22 per share for Dollar General, which helped drive the discount retailer's shares up $4.29, or 25.6 percent, to close at $21.07 on the New York Stock Exchange. The shares hit a 52-week high of $21.40 earlier in the session.

The retailer, based in the Nashville suburb of Goodlettsville, operates about 8,260 stores that serve mostly moderate to lower income shoppers. Dollar General's earnings have been lagging recently amid its restructuring plan to eliminate its "packaway" system of inventory management — where unsold seasonal items were warehoused until the following year — and to fend off tough competition from rivals like Family Dollar Stores Inc.

The retailer's earnings swung to a loss in the third quarter as it took charges for changes in its inventory plan and for store closings. Loss for the quarter ended Nov. 3 totaled $5.3 million, or 2 cents per share, compared with a profit of $64.4 million, or 20 cents per share, during the same period a year earlier.

Dollar General is scheduled to release its fourth-quarter earnings on March 26.

"The agreement to be acquired may reflect potential for the stock to lag otherwise following recent earnings weakness ... and projected sluggish 2007 earnings (amid extensive operational changes announced in November)," analyst J. David Cumberland, of Robert W. Baird & Co., said in a research note.

Dollar General shareholders must still approve the deal, which would close in the third quarter.

KKR will also assume $380 million in debt as part of the deal, Dollar General said.

"KKR supports the strategic changes the company has under way and looks forward to working with them to accelerate their progress and take advantage of growth opportunities in the market," KKR said in a statement.

A Dollar General spokeswoman did not return a phone message seeking further comment.

Last week, Dollar General reported its February sales at stores open at least a year rose 4.9 percent, beating Wall Street forecasts for a 4.6 percent jump. Total sales for the month rose 7.8 percent to $695.6 million from $645.4 million.

The company, which has about 64,500 workers, posted 2006 earnings of $350.2 million on sales of $8.58 billion.

"It looks like a good price, it's easily financeable, and the buyer is experienced and certainly knows how to get this thing done," said Thomas Burnett, director of research at Wall Street Access, an institutional brokerage firm.

Dollar General in November announced plans to close 400 stores and open about 300 new locations.

The plan, which also included changing inventory management methods, was slated to cost about $138 million, with $74 million related to store closings and $64 million for higher markdowns to aid the move away from its former inventory management model as well as other expenses.