The family that runs 99 Cents Only Stores NDN.N changed buyout partners to take the retailer private at a higher price than an earlier proposal in March, marking the latest private equity backed deal in discount retail.
The Schiffer/Gold family, who run the company and control roughly a third of its stock, are now teaming up with Ares Management and Canada Pension Plan Investment Board in a $1.6 billion deal for the retailer.
The latest $22-a-share offer is 32 percent more than the stock's trading levels before private equity firm Leonard Green and the family joined hands for a $1.34 billion bid in March.
"The (latest) offer still undervalues the company a little bit ... I would have liked to see it at $23 -$24," Crowell, Weedon & Co analyst James Ragan told Reuters.
Shares of 99 Cents were trading at $21.40 -- 60 cents off the deal price.
"Investors are probably just cautious after a long drawn merger process ... The stock price will move higher as people become convinced that the bid will go through," Ragan said.
The analyst does not believe a higher offer is likely.
The Leonard Green bid had been deemed too low by many analysts and 99 Cents later formed a special committee of independent directors to consider that offer and other possible proposals.
There had been media reports of possible interest by private equity firm Apollo Management as well, but the New York Post reported last week that Apollo dropped out of the race for the dollar chain.
Discount retail has seen a rush of M&A activity, especially from private equity, this year on cheap valuations, respectable free cash flow and expansive real estate assets.
Leonard Green took BJ's Wholesale private earlier this year, while Family Dollar Stores FDO.N snubbed a bid from billionaire investor Nelson Peltz's Trian Group.
A recession and persistently high unemployment rates have trained U.S. consumers to shop at discount retailers that sell low-priced and close-out goods .
99 Cents, which mostly sells products for under a dollar, was founded by David Gold in 1982, and it is run by his son-in-law Eric Schiffer.
CEO Schiffer and Jeff Gold, the president and operation head, will both retain their positions after the deal closes in the first quarter of next year. The Schiffer/Gold family will continue to hold a minority stake in the company.
99 Cents was advised by Lazard Freres & Co, and Guggenheim Securities advised the Schiffer/Gold family on the deal. (Reporting by Meenakshi Iyer and Mihir Dalal in Bangalore; Editing by Saumyadeb Chakrabarty, Viraj Nair)