The Reject Shop shareholders told to sit tight on $78m takeover bid

The Reject Shop ASX TRS takeover bid Geminder Allensford
The Reject Shop has received a $78m on-market takeover bid by billionaire packaging tycoon Raphael Geminder.

The directors of discount goods retailer The Reject Shop (ASX: TRS) have urged shareholders sit tight regarding a $78 million takeover offer by Allensford investment group.

This morning, Allensford announced an unconditional on-market offer for the discount chain of $2.70 cash per share, representing a 19% premium on The Reject Shop’s one-month volume weighted average of $2.27.

Allensford is the bidding vehicle for billionaire businessman Raphael Germinder’s Kin Group, which has appointed Bell Potter Securities to purchase the shares from now until 7 January 2019.

Of the 28.9 million shares offered by The Reject Shop, Allensford currently holds approximately 800,000, equating its proposed takeover to $78m.

There are no conditions attached to the offer and Reject Shop shareholders who sell some or all of their shares on-market will receive the cash proceeds two trading days after acceptance of the offer has been made.

Troubled times

Allensford’s takeover offer appears to have surfaced at the right time for The Reject Shop and represents “immediate and certain cash value” for shareholders given the company’s deteriorating financial performance.

In the past year, the troubled retailer has weathered a 54% drop in its share price from $5.26, and subsequently downgraded its forecast profit for the first half of 2019 from $18 million to around $11 million.

News of the revision in October saw the company’s share price plummet again, this time by almost 40% to $2.72.

The Reject Shop historical share price takeover bid
The Reject Shop’s historical share price.

The upcoming Christmas trading period will have a significant bearing on whether that revision can be achieved.

Comparable year-on-year sales have similarly been classed as “flat or declining” with average annual sales growth being around 0.1%.

Full-year net profit for 2019 is being targeted at $17.7m although “an absence of real wage growth” and rising mortgage rates are expected to have an ongoing impact.

Allensford said shareholders should accept the bid offer as an alternative to facing “significant challenges due to the discretionary retail environment” in which The Reject Shop stores operate.

Director response

The Reject Shop’s directors have advised shareholders that it will make a recommendation once it has evaluated the finer details of Allensford’s takeover offer in consultation with financial adviser Macquarie Capital (Australia) and legal adviser Lander & Rogers.

The directors have considered the offer “to be somewhat opportunistic” and said they would keep shareholders fully informed of further developments.

“[We] continue to believe in the long-term growth prospects of our business, which has remained profitable amidst a challenging period in the Australian retail environment,” chairman William Stevens said in response to the bid.

At midday, shares in The Reject Shop were up 13.99% to $2.77.

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