Canadian value retailer Dollarama Inc (TSX: DOL) continues to increase its global footprint after striking a deal to buy Melbourne-based The Reject Shop (ASX: TRS) at $6.68 per share, representing a 112 per cent premium to recent trading at a price level not seen since early 2022.
The offer implies a valuation of $259 million for the Australian company, prompting the board to enter a scheme implementation agreement towards an acquisition, unanimously recommending shareholders vote in favour of the deal at a meeting due to be held in June.
The announcement comes after the Montreal-based suitor upped its stake in Latin American value retailer Dollarcity by 10 per cent to 60.1 per cent in mid-2024.
Dollarama has 1,601 locations throughout Canada while Dollarcity has 588 stores spread across Colombia, Peru, Guatemala and El Salvador. By the end of last year The Reject Shop had 393 stores of which nine had opened in the December half, with a further 22 openings planned in the current half and beyond.
The Australian discount retailer saw its net profit after tax (NPAT) lift by 10.1 per cent to $15.9 million, despite recording only a marginal increase of 2.9 per cent in sales to $471.7 million.
"Today marks a milestone in the journey of The Reject Shop," says The Reject Shop chairman Steven Fisher.
Attracting an offer from Dollarama, a recognised leader in the value retail market, is testament to both the meaningful improvement that our incredible team has made to our business over the past few years as well as the significant growth potential that exists for The Reject Shop.
"The all-cash scheme consideration provides attractive value and certainty for all shareholders. The board believes the proposed transaction will benefit both shareholders and stakeholders of The Reject Shop and is in line with the board’s priority to deliver shareholder value."
Fisher's comments are echoed by the retailer's chief executive officer Clinton Cahn.
"We are excited about the opportunities that this transaction presents," Cahn says.
"There is strong cultural alignment between our teams and we look forward to working alongside the Dollarama team to leverage the expertise of a leading value retailer, accelerate our store network expansion plan and continue helping all Australians save money every day."
Dollarama chief executive officer Neil Rossy looks forward to this next chapter in the multinational's global growth journey with The Reject Shop's local management team and 5,000-plus employees in Australia.
"Together, we will leverage our core strengths as value retailers with best-in-class merchandising, sourcing and operational expertise," Rossy says.
"With compatible cultures and values, we are confident that the business will have an exciting future as Dollarama’s new and complementary growth platform.
"Identifying the right opportunity to expand into new geographies and build on our track record as a leading value retailer in Canada and Latin America has been a key objective for the Dollarama team. With this acquisition, we have a unique and compelling opportunity to bring our differentiated value proposition to a new market which presents a clear path for growth through an established platform."
The Reject Shop’s largest shareholder Kin Group, which controls approximately 20.8 per cent of TRS shares, intends to vote in favour of the acquisition in the absence of a superior proposal, provided an independent expert concludes the scheme is in the best interests of shareholders.
The agreement provides for customary deal protection measures in favour of Dollarama, including no shop, no talk and no due diligence obligations and customary provisions including notification obligations and matching rights in the event of a third-party proposal.
If The Reject Shop accepts another superior proposal it will have to pay a break fee of approximately $2.6 million or 1 per cent of its fully diluted equity value.
The Reject Shop board also intends to pay a $0.77 a fully franked special dividend, which would be payable upon completion of the scheme and deducted from the scheme consideration.
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