Is Fantastic Holdings Limited a takeover target?

Fantastic Holdings Limited (ASX: FAN) is shaping up as a potential takeover target which could provide an escape route for unsettled investors, should an offer eventuate.

According to reports from The Australian Financial Review, the embattled furniture retailer is believed to be on the radar of at least two private equity firms which could look to buy out the company’s outstanding shares.

Nothing has materialised at the point, and there is no guarantee that it will. But given that the shares are trading at just $2.04, which is a considerable discount to their $2.43 high from roughly six months ago (and their high of almost $3.70 in early 2013), now could be a good opportunity for firms to take a closer look.

Indeed, such a move could create an out for shareholders who have watched the shares stumble over the last 12 months. In January, the group’s chief executive officer and chief financial officer both resigned in quick succession of one another, with little in the way of explanation from the company.

Still, investors have at least been rewarded with a strong performance from the company itself. Fantastic Furniture reported an 11.7% increase in sales during the first half of financial year 2016 (with comparable sales up an impressive 15.7%), while earnings before interest and tax (EBIT) and net profit were up 45.8% and 56.6%, respectively.

According to the company, the results were partially driven by an improved customer value proposition, together with a refreshed product range. Australia’s booming property market likely also led to an increase in demand, as it has done for other related businesses such as Nick Scali Limited (ASX: NCK) and Harvey Norman Holdings Limited (ASX: HVN).

Before investors get too excited about a potential takeover bid however, it’s worth remembering that Fantastic Furniture has a very concentrated investor base. This is likely also one of the reasons for the investor unrest, based on the belief that the interests of major shareholders mightn’t be properly aligned with those of the broader market.

Fantastic Furniture shares have risen 2.5% today, but are trading 6.8% lower since the beginning of the year. It’s worth remembering that, although Fantastic Furniture could be a takeover target, there is no guarantee a deal with any party will be reached. Therefore, investors would be unwise to invest in the business based solely on the hope of an eventual offer being made.

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Motley Fool contributor Ryan Newman has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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