Dollar General Goes Private Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Problem Diagnosis

This paper attempts to analyze the merger of Dollar General Company by the private equity sponsor KKR. The acquisition of Dollar General Company by Kohlberg Kravis Roberts & Co. (KKR) would take the company private in the year 2007 and the shares of the company would then be no longer traded on the stock exchange. This proposed merger seemed to be quite attractive at the time of the announcement of the deal as the proposed merger had generated about 31% in premium over the prevailing stock price at that time.

Furthermore, the enterprise value to the EBITDA multiple was also higher for Dollar General Company at the time of the announcement of the deal in comparison to the other comparable companies in the same retail industry. However, still a number of the shareholders of Dollar General Company had claimed that the price for the acquisition of Dollar General Company was grossly inadequate and thus the company due to a number of reasons.

A final recommendation needs to be made in order to perform a financial statement analysis for the company and also to perform an analysis of the proposed LBO model for Dollar General Company. Irina Sadayo was one of the retail shareholders of Dollar General Company was debating the sale of the company to KKR and therefore, a detailed analysis needs to be performed of this transaction to make a final decision.

Analysis

All the aspects of the Dollar General Company-KKR transaction needs to be analyzed and assessed before a final recommendation is to be made. According to the company statements, the merger was expected to be closed in the 3^rd quarter for the year 2007 and therefore, a final decision and a consensus needs to be reached out by all the shareholders of the company.

Advantages of going Private

First of all from the point of view of KKR there seem to be many advantages for the firm to take the company private with an estimated debt of $ 380 million. When a company makes a decision to go public, then the shares of the company are no longer traded on the stock exchange. The company is also not bound to present its financial results annually or quarterly to the general public and the issues related to the regularity with all the accounting bodies are removed completely.

Private businesses also have more flexibility in order to become more flexible in reorganizing their business profiles and also reorganizing the management team of their company. In most of the cases, the board members and the shareholders of the company going private also receive a lot of financial rewards and in the case of Dollar General Company also the board had already approved the financial transaction between Dollar General Company and KKR.

However, there are also situations in which the firms that are public don’t have a choice as the deal is basically a hostile takeover. One of the prominent reasons for Dollar General Company for accepting the KKR deal was that the retail market in United States is saturated with too many stores. Therefore, when the retailers start to expand by opening more stores so they start to cannibalize the profits of their old stores and overall the total profits of the companies are eroding.

KKR has been favoring Dollar General Company because, the cash flow of the company is positive and the level of the debt in the capital structure of the company is low as compared to other companies in other sectors. Dollar General Company also owns its real estate against which KKR could also borrow in future in order to turnaround the efforts for the company’s stores and finance the takeover with the money.

Assessment of Dollar General’s Performance

In assessing the performance of Dollar General Company first of all an internal comparison needs to be made and then an external comparison of the performance of the company will be performed.Dollar General Goes Private Case Solution

Internal Comparison

In order to analyze the internal performance of the company, first of all if we analyze the statement of the income for the company then it could be seen that the period cost and the production cost for the company had increased which has resulted in a lower net income for the company from 2005 to 2007. Furthermore, if we look out at the ratio analysis of the company, then the profit margin and the revenue growth of the company have also declined over this period..........................

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