Godfreys Group Ltd surges 42% on takeover bid

Cleaning appliances retailer Godfreys Group Ltd (ASX: GFY) has risen 42.86% to 30 cents in morning trade after receiving an off market takeover bid from its largest shareholder Arcade Finance Pty Ltd yesterday after the close of trade. Arcade is offering shareholders of Godfreys 32 cents cash for each share held, which represents a 52.4% premium to the company’s closing share price on April 6, the last trading day before the takeover bid was made.

Co-founder bid

Arcade currently has a 28.09% stake in Godfreys’ issued share capital and is the investment vehicle of John Johnston, who co-founded Godfreys with Godfrey Cohen in the 1930s. An associate company of Arcade, 1918 Finance Pty Ltd, is the lender of Godfreys $30 million secured debt facility. Arcade’s takeover offer is aimed at restoring Godfreys’ value and improving its financial performance as an unlisted private company. At this stage, the Board of Godfreys has recommended shareholders take no action to the takeover bid and will appoint an independent expert to determine whether the offer is fair and reasonable.

Foolish takeaway

It has been a tumultuous run for shareholders of Godfreys after it floated on the Australian market in December 2014 at $2.75 per share. The company’s stores have struggled amidst fierce competition from new online only retailers and large established retailers such as JB Hi-Fi Limited (ASX: JBH) and Harvey Norman Holdings Limited (ASX: HVN). Consumers battling low wages growth and rising utility bills has also added to the difficulties confronting Godfreys over the last 12 months.

Godfreys’ latest earnings report for the December 2017 half year reaffirmed the difficulties the business is facing. Revenues fell by 8.9% to $84.2 million with comparable like for like sales down 6.2% over the prior period. The company’s margins also dropped by 250 basis points to 1.8%, which resulted in earnings before interest, tax, depreciation and amortisation decreasing 43.3% to $3.6 million. After posting a non-cash impairment of intangibles and other assets of $75.2 million, the company’s net loss after tax blew out to $58.6 million.

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