Struggling discount department store The Reject Shop has received an unconditional on-market cash offer by Allensford Pty Ltd, for any shares the business does not already own.
The offer, which amounts to $2.70 per share, represents a 19 per cent premium to the one month volume weight average price to 20 November of $2.27 per share.
Of the 28.9 million shares offered by The Reject Shop, Allensford currently holds approximately 800,000, equating to a potential $78 million takeover offer.
The board of The Reject Shop recommended shareholders take no action in regards to the takeover offer, which it considers somewhat opportunistic.
“The Reject Shop board continues to believe in the long term growth prospects of our business which has remained profitable amidst the backdrop of a challenging period in the Australian retail environment,” The Reject Shop chairman William Stevens said in a statement on the ASX.
Stevens noted the retailers focus on executive its customer driven strategy, and realising the benefits of implemented projects which leverage the infrastructure, brand and assets of the business.
The Reject Shop board will evaluate the offer, and provide its recommendation to shareholders in due course.
“This offer comes in the context of a challenging environment for discretionary retailers,” Allensford director Nicholas Perkins explained in a letter to The Reject Shop shareholders.
“There is increased competition for consumer discretionary spend following the emergence of a number of online discount retailers and continued high levels of competition in bricks-and-mortar discount department stores.”
Perkins said the offer represents immediate value for The Reject Shop shareholders within the context of the business’s financial deterioration, as evidenced by the revised guidance figures, underwhelming share price, as well as flat or declining comparable year on year sales continuing into FY19.
The Reject Shop slashed its half yearly profit guidance by approximately 40 per cent in October to between $10 million and $11 million. The business’s share price subsequently fell from $4.40 to $2.70, making the retailer an attractive option for a takeover.
Perkins said the first 15 weeks of The Reject Shops FY19 period have seen comparable sales fall to -2.4 per cent, compared to the 1 per cent growth the retailer expected for the first half of the year.
“With TRS approaching the critical Christmas trading period, decelerating comparable sales mean there is a significant risk that TRS’s financial performance deteriorates further,” Perkins said.
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