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Reject Shop Ltd (ASX:TRS) shares storm higher on takeover approach

The market may be sinking lower but that hasn’t stopped the Reject Shop Ltd (ASX: TRS) share price from storming higher this morning.

At the time of writing the discount retailer’s shares are leading the way with a 13% gain to $2.74.

Why is the Reject Shop share price storming higher?

This morning the company revealed that it has received an unconditional on-market takeover offer of $2.70 cash per share from Allensford Pty Ltd.

This offer represents a ~19% premium to Reject Shop’s 1-month VWAP of $2.271 and, according to the bidder, “provides certainty for TRS shareholders.”

It feels that the offer “represents immediate and certain cash value” due to the deterioration of the company’s financial performance over time and its share price underperformance against the All Ordinaries index.

In addition to this, the bidder has pointed out that there are a number of potential challenges facing the discretionary retail sector in which the company operates.

These include “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.”

Who or what is Allensford Pty Ltd?

The release explains that Allensford, in its capacity as trustee for the Allensford Unit Trust, has been incorporated specifically for the purpose of acquiring an interest in Reject Shop’s shares.

Allensford is wholly owned by Bennamon Pty Ltd, which in turn is wholly owned by Kin Group Pty Ltd.

Kin Group is a diversified, global, long-term focused investor ultimately controlled by the Geminder family and is the majority shareholder of Pact Group Holdings Ltd (ASX: PGH).

What now?

While bargain hunters that picked up shares after its share price crashed last month may be happy with the offer, I doubt shareholders that have been holding its shares for longer than this will be pleased.

Just six months ago the retailer’s shares were priced at $6.56, which is a whopping 142% premium to the offer price. As such, I would label this offer as opportunistic and be reasonably surprised if it succeeded.

Not that I would necessarily be a buyer of its shares. Instead, I would suggest investors check out fellow cheap retail shares Adairs Ltd (ASX: ADH) and Super Retail Group Ltd (ASX: SUL) instead.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Super Retail Group Limited. The Motley Fool Australia has recommended The Reject Shop Limited. 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 Scott Phillips.

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