Private equity firms' interest in the retailer waned due to concerns about the price, two sources familiar with the matter said.

There was a large gap between where the stock had risen and what the buyers were willing to pay, one of the sources said. Bidders had been looking at prices in the low $30s a share, that source said, while the company's stock had traded above $40.

The shares dropped 11.8 percent to $33.30 in afternoon New York Stock Exchange trading, valuing Big Lots at about $2.5 billion.

While financing is available for leveraged buyout deals, the run-up in market valuations means that many potential targets are too expensive for private equity firms, which typically target returns of 20 percent on their investments.

Companies in the same sector as the target are now frequently outbidding private equity firms.

A number of private equity firms, including Bain Capital and Thomas H. Lee Partners, had been interested in Big Lots, sources familiar with the matter previously told Reuters.

Columbus, Ohio-based Big Lots, which competes with larger companies such as Dollar General Corp. and Wal-Mart Stores Inc., hired Goldman Sachs Group Inc. to explore a sale, a source familiar with the matter previously said.

Big Lots was not immediately available for a comment about the failed auction, which was first reported in The Wall Street Journal.

The company, which stocks its stores with merchandise that has been overproduced, discontinued or rejected by other retailers, has suffered from aggressive discounting and promotions by rivals in recent quarters.

BUYOUT FIRMS OUTBID

This is the latest auction which has not resulted in a deal for private equity.

Several private equity firms were competing for Landis+Gyr, but Japanese electronics manufacturer Toshiba Corp. prevailed, striking a $2.3 billion deal for the Switzerland-based smart metering company on Thursday.

Private equity bidders have also been dropping out of the auction for Federal-Mogul Corp. Carlyle Group and Apollo Global Management APO.N are no longer interested in buying the company, several sources familiar with the situation told Reuters earlier this week, shrinking the field of potential bidders for the auto parts company.