UPDATE 1-TPG dropped out of KKR's Dollar General bid-sources
(Adds TPG to J. Sainsbury bidding group in para 12)
NEW YORK, March 14 (Reuters) - Private equity firm Texas Pacific Group (TPG) TPG.UL was teamed up with Kohlberg Kravis Roberts & Co. KKR.UL in a bid for discount retailer Dollar General Corp., but decided to drop out, sources said on Wednesday.
While it was unclear why TPG abandoned the bid, one source close to the deal indicated the firm may have been wary of the $22 per share that KKR offered to pay for Dollar General (DG.N).
Texas Pacific and KKR declined to comment.
Including the assumption of $380 million in debt, Dollar General, which operates 8,260 discount variety stores, said the deal was worth about $7.3 billion and was a 31 percent premium over its closing stock price on Friday.
The deal is valued at 12 times cash flow forecasts for 2007, much higher than the average 8.5 times cash flow typically paid by private equity firms in other retail deals, analysts said.
The buyout represents a "significant premium to the average takeout multiple for retail names of 9.6-times (cash flow) for previous deals since 2001 in our data base," Deutsche Bank analyst Mike Baker said in a research note.
He added that average multiples paid by private equity buyers have been less than 8.5 times cash flow.
Dollar General shares were down 7 cents at $21.03 on the New York Stock Exchange, indicating that investors were not betting on a counteroffer.
Private equity firms buy and sell companies, borrowing most of the money to finance deals. They seek companies with strong cash flows to help pay down the borrowed debt.
KKR and TPG are teamed up in a $44 billion deal to buy Texas utility TXU Corp. TXU.N, the largest private equity deal ever.
KKR's retail portfolio includes the March 2005 purchase of Toys "R" Us Inc. for around $6.6 billion with Bain Capital and Vornado Realty Trust (VNO.N).
Two months later, TPG and Warburg Pincus agreed to acquire upscale retailer Neiman Marcus Group in a deal worth around $5.1 billion.
KKR is currently in the hunt for British drugstore chain Alliance Boots Plc AB.L with a takeover over of about $18.8 billion, and has joined a bidding group that includes TPG that is considering an offer for British grocery store chain J. Sainsbury Plc. (SBRY.L)
((Editing by J.S. Benkoe; e-mail michael.flaherty@reuters.com; +1 646-223-6152)) Keywords: DOLLARGENERAL TPG/
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