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Why the Reject Shop Ltd knocked back its takeover bid

The Reject Shop Ltd (ASX: TRS) share price is flat at $2.87 today after the discount retailer revealed it has rejected the $2.70 per share cash takeover offer from Allensford Unit Trust.

Reject Shop’s management gave several reasons for the decision including; the offer “is inadequate and does not reflect the underlying value of The Reject Shop”, the timing of the offer is highly opportunistic, the management and board have a clear plan to deliver earnings growth, the offer does not account for the true strength of The Reject Shop’s business.

For its part Allensford claimed the offer was attractive given Reject Shop’s flat or declining year on year sales and weak start to FY 2019. It also warned investors that Reject Shop was heavily reliant on the Christmas trading period if it was to meet its full year guidance.

However, with the shares now trading above the offer price it seems Allensford has no choice but to significantly raise its bid if it is to have any chance of a takeover being completed.

Motley Fool contributor Yulia Mosaleva has no position in any of the stocks mentioned. 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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