Reject Shop receives "opportunistic" $78m takeover bid

Reject Shop receives "opportunistic" $78m takeover bid

It has been a rough two months for discount retail chain The Reject Shop (ASX: TRS).

In October, the company's shares fell 35 per cent in one day in response to a bleak trading update from the company.

The dive was off the back of the company announcing it was unlikely to hit its profit guidance of $17.7 million for the first half of the 2019 financial year.

Instead, The Reject Shop expects to land somewhere between $10 million and $11 million at 1H19.

Now the company has announced it is evaluating a takeover offer from a newly incorporated company called Allensford, at a price that might irritate shareholders who were affected during the October dive.

For the moment, the retailer's board recommends shareholders take no action with regards to the offer, describing it as "somewhat opportunistic".

Allensford incorporated specifically for the purpose of acquiring The Reject Shop and is wholly owned by Bennamon Pty Ltd, which in turn is owned by Kin Group.

Kin Group is an Australian long-term focused investor with interests in food & beverage businesses and property.

The company is the family office vehicle for Raphael and Fiona Geminder; Fiona being one of the two daughters of Richard Pratt, the founder of Australia's largest plastics packaging manufacturer.

Kin Group has offered shareholders of TRS $2.70 per share, representing more than an 11 per cent premium on yesterday's close of $2.43. 

While the offer is a premium on TRS' current share price, it is significantly lower than where the shares were at just over a month ago.

Allensford has described Kin Group's offer as "attractive", and an opportunity for shareholders to exit before things get worse.

"The offer represents immediate and certain cash value for TRS shareholders in the context of TRS's deterioration in financial performance over time," says Allensford.

Allensford points to The Reject Shop's underperforming share price, its flat or declining sales that are expected to continue into FY19 and its profit downgrade as the main reasons for shareholders to exit now.

Allensford says it does not expect circumstances to get better for the store.

"There are a number of potential challenges facing the discretionary retail sector in which TRS operates, including increased competition for consumer discretionary spend following the emergence of online discount retailers and continued high levels of competition in bricks and mortar discount department stores," says Allensford.

"Accepting this Offer delivers certain and immediate cash value and removes shareholder exposure to the deteriorating financial performance of TRS and risks associated with continuing to hold TRS shares."

At 13:34 AEDT, TRS shares were up 16 per cent at $2.82.

The Reject Shop chairman William Stevens says the board believes in the company's future. 

"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," says Stevens.

"We remain focused on executing on our customer driven strategy, and realising the benefits from a range of projects we have implemented which leverage the infrastructure, brand and assets of The Reject Shop."

Looking at The Reject Shop's announcement in October about its profit downgrade, the retailer pointed to a tough Australian economic environment as one source of its problems.

The company's main gripe was with record low wage growth across the country which is tightening discretionary spending.

Additionally, many of The Reject Shop's customers are turning to alternatives both online and offline.

There is a glimmer of hope for The Reject Shop in the form of the Christmas trading period.

Back in October, managing director Ross Sudano said Christmas could give the retailer some kind of momentum.

"We are entering our key selling period and have a strong seasonal program in place, with a compelling value offer for Christmas and many tactical activities in place to drive sales," says Sudano.

"Christmas plans are built on the successes from last year and the early trade of the Christmas merchandise has been positive."

UPDATE 12.15PM AEDT: The original article incorrectly attributed certain quotes to The Reject Shop, amendments have been made to show that these quotes were made by Allensford.

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