Dollar General Corp has agreed to be acquired by private equity fund Kohlberg Kravis Roberts & Co in a deal that could top $7.3bn.

Dollar General said Monday (12 March) morning that its board had unanimously agreed to be bought by an affiliate of KKR for $22 a share in cash plus $380m in net debt.

The stock price represents a 31% premium to DG's closing share price of $16.78 on Friday and is 29% higher than the stock's average price on the New York Stock Exchange over the previous 30 trading days.

The deal, which requires the approval of DG's shareholders and other regulatory approval, is expected to close during the third quarter of the current fiscal year.

"We are very pleased to announce a transaction that provides excellent value for our shareholders, representing a significant premium and the certainty of cash," commented David Perdue, Dollar General's chairman and chief executive officer.

"Our board of directors firmly believes that this is the right transaction for our shareholders, employees and customers. Going forward, employees will benefit from the continuity of a solid business plan and new investments in the future of the business.

"Our customers will continue to enjoy the convenience, value and great service that they've come to expect from Dollar General over our proud 68-year history."

Dollar General, based in Goodlettsville, Tennessee, operates 8,260 "neighbourhood" general merchandise stores which include basic apparel in their assortments.

In the fiscal year ended 2 February, sales rose to $9.17bn from $8.58bn in fiscal 2005. Same-store sales rose 3.3%. Last month, same-store sales were up 4.9% but were up 4.2% when 130 stores currently closing as part of a previously announced store revitalisation effort are excluded.

Dollar General was scheduled to release its fourth-quarter and full-year results for 2006 on 26 March and gave no indication that its plans had changed.

The revitalisation effort, among other actions, seeks to minimise merchandise carryover from season to season and year to year and directs Dollar General to take markdowns on a timelier basis. Failure to do so had burdened Dollar General's inventory and turnover performance as compared to those of its competitors.

Speaking for KKR, Michael Calbert said: "Dollar General is an outstanding company with a strong market presence and a rich legacy. We have worked closely with many retail companies in driving success and unlocking value, and we looking forward to partnering with Dollar General to position the company for future growth."

KKR has invested in 14 transactions in the retail sector in the past 30 years, totalling about $25.5bn in equity. The fund estimates that, since its founding, it's completed about 150 transactions with aggregate value of about $280bn.

KKR, along with Bain Capital and Vornado, was behind the $6.6bn blockbuster deal that took Toys 'R Us private in 2005. It acquired Masonite that same year and Sealy, the large bedding supplier, in 2004.

Goldman Sachs and Lehman Brothers have committed to debt financing for the deal. DG was advised by Lazard and Lehman while Goldman advised KKR.

By Arnold J Karr.