Why Surfstitch Group Ltd shares have jumped 14% today

Shares of Surfstitch Group Ltd (ASX: SRF) have spiked more than 14% today after the online surf wear company revealed it had received a $0.20 per share takeover offer from Coastalwatch Pty Ltd.

Although the board has rejected the offer, the company did note that a number of other parties have shown interest in the business, although none of the discussions are at an advanced stage yet.

It appears this statement has given some investors hope that another offer might be in the making as the shares are currently trading near the rejected takeover price of 20 cents per share.

As highlighted by the chart below, however, this is still a far cry from the $2+ levels they were trading at 12 months ago.

Source: Google Finance

Source: Google Finance

In an interesting twist, Coastalwatch already owns 10.4% of Surfstitch shares, but it is also one of the primary parties that is suing the company for allegedly breaching commercial agreements that were entered into last financial year.

The fact that Coastalwatch continues to pursue legal action against Surfstitch is one of the principal reasons why the board has rejected the offer. The board also believes the 20 cent per share offer does not reflect an appropriate premium for securing control of the company.

As part of the broader update, Surfstitch also announced that it has commenced stage 2 of its strategic review where it will continue to focus on cost cutting and a new strategic direction.

Although today’s update might be welcome news for some shareholders, it still won’t make up for the disastrous performance of the business over the past 12 months. During this short time investors have had to endure the departure of its founder and former CEO, profit downgrades, asset writedowns and a cash balance that has vanished rapidly.

In light of this, investors may be best served by steering clear of Surfstitch and considering these three shares instead.

Discover the 'new breed' of blue chips that could take your portfolio higher

Forget BHP and Woolworths. These 3 "new breed" top blue chips to buy now pay fully franked dividends and offer the very real prospect of significant capital appreciation. Click here to learn more.

The report is free! No credit card required.

Motley Fool contributor Christopher Georges 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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.