M&A Deals of the Year
Introduction   Apple and partners-Nortel   Google and Motorola Mobility   Access Industries -Warner Music   Cumulus Media-Citadel   Comcast-NBC Universal   H&R Block-TaxAct   Caterpillar-Bucyrus   Ares and CPPIB-99 Cents Only Stores   Grupo Bimbo-Sara Lee baking assets   BHP Billiton-Petrohawk   Peabody Energy-Macarthur Coal   Selling off Bank of America   Dish Network-Blockbuster   Amgen-BioVex   KKR et al.-Samson Investment   Pearson-Connections Education   Alleghany-Transatlantic   Breaking up Dexia

In early 2011, with financing suddenly available, investment banks and financial sponsors began approaching City of Commerce, Calif.-based retail discounter 99 Cents Only Stores with interest in a leveraged buyout. Looming over the talks: the recent $2.86 billion LBO of J.Crew Group Inc. by Leonard Green & Partners LP and TPG Capital -- evidence of a renewed interest in retail after several years of recession.

But J.Crew was also a warning about deals done under less than transparent conditions. Shareholders sued after CEO Mickey Drexler waited to inform the board weeks after he began talks with TPG and Leonard Green. J.Crew had to extend its go-shop to 85 days in a settlement. No new bidders appeared, and shareholders approved the buyout on March 1.

Leonard Green played a role in both buyouts. On March 10, the Los Angeles-based PE shop announced it had teamed up with the family of 99 Cents chairman and founder David Gold, 79, and son-in-law CEO Eric Schiffer, to offer $19.09 per share for the retailer. Was this J.Crew redux? 99 Cents learned a few lessons from J.Crew on what not to do. By April 11, its board formed a special committee to consider the $1.34 billion offer, as well as other bids and strategic alternatives.

The family recused itself from dealing with Leonard Green, even as the buyout firm continued to act on its behalf. The family, which held a 33% stake, made it clear it was open to alternative combinations, seeking the best deal for shareholders, a source says, which would include itself. Despite family control, a source says Gold had a record of limiting salaries of his children who worked at the company to $100,000 a year, and never selling shares or leveraging operations. When the company was sold, it had no debt on its balance sheet.

Apollo Global Management LLC appeared in early July, but its plan to merge 99 Cents Only Stores with its portfolio company Smart & Final Inc., a grocery wholesaler also based in City of Commerce, hit a snag in late summer when credit markets froze up in the wake of the European debt crisis.

Apollo did not emerge as a winner, but it may have spurred a higher offer from Ares Management LLC and Canada Pension Plan Investment Board, which made a $1.6 billion offer, or nearly 10 times trailing Ebitda, on Oct. 11.

The $22 a share bid, a 30% premium over the trading price before Leonard Green appeared, easily trumped the opening salvo of $19.09 per share. The family went from potentially accumulating up to a 50% stake when it initially teamed with Leonard Green to a 20% stake in the Ares and CPPIB buyout, says a source. At $19 a share, the family was willing to boost its stake from 33% to 50%, but at $22, that price was too rich.

Despite uncertainties in the debt markets, Toronto-based RBC Capital Markets LLC and BMO Capital Markets Corp. provided a $525 million term loan, $250 million in senior unsecured notes and a $150 million asset-backed revolver. Fortunately, 99 Cents Only Stores continued to improve sales and earnings.

And with 46% of the deal constituting equity, Gold didn't need to leverage up. Ares contributed $370.9 million and CPPIB tossed in another $256 million, while the family rolled over 4.55 million shares. This was no J.Crew.