Iconic Aussie retailer The Reject Shop a step closer to $259m sale to Canadian giant

Australian discount giant The Reject Shop is a step closer to locking down a $259m takeover by a Canadian group which has huge plans for its 390 locations.

Iconic Australian discount chain The Reject Shop is a step closer to locking down a $259m sale to a Canadian retail giant.

Iconic Australian discount chain The Reject Shop is a step closer to locking down a $259m sale to a Canadian retail giant, after gaining approval from the Federal Court to hold a shareholder vote on the proposal.

The prospective buyer, Canadian value retailer Dollarama, which is headquartered in Montreal and listed on the Toronto Stock Exchange, plans to almost double the number of stores in Australia to around 700 over the next decade.

The takeover of the ASX-listed chain, which has hundreds of stores across Australia and was founded in Melbourne more than 40 years ago, will hold the special shareholder meeting next month.

The Reject Shop, which opened its doors in South Yarra in Melbourne’s inner city in 1981, has become a household name with 390 locations nationwide, known for selling everything from food and drinks to beauty products and cleaning supplies at affordable prices.

The Reject Shop opened its doors in South Yarra in Melbourne’s inner city in 1981.

Dollarama has offered to pay The Reject Shop shareholders $6.68 in cash per share, which was more than twice the stock’s $3.15 closing price at the time.

Following the disclosure of the bid, The Reject Shop’s shares soared 110 per cent to close at $6.60.

The Reject Shop’s chairman Steven Fisher previously said the board had unanimously recommended Dollarama’s offer.

Billionaire businessman Raphael Geminder, whose company Kin Group is the chain’s largest shareholder at 20 per cent, is also supportive of the deal.

The takeover, if approved by shareholders, is expected to be completed in the second half of this year.

Founder of retail consultancy firm Retail Doctor Group, Brian Walker, told News Corp it was “very impressive” that The Reject Shop board and leadership team had achieved this valuation.

“With Dollarama’s scale and retail muscle, there’s real potential for The Reject Shop to expand into marketplaces and diversify its revenue streams while supercharging its fulfilment capabilities,” he said.

Dollarama owns more than 1600 shops in Canada. Picture: Dollarama

Mr Walker said Dollarama’s intention to scale up the discount chain’s store network was “ambitious”.

“The discount variety sector remains highly resilient in economic downturns, and with smart location strategy and supply chain efficiencies, my view is that as an omnichannel play driven by slightly more conservative growth into regional and sub peripheral metro markets could get to 450 to 500 profitable shops or similar,” he said.

“Dollarama must bring capital and improved margin to satisfy shareholders and that will be the measurement.”

He said the chain should focus on an online retail marketplace and retail media growth as part of the revenue build.

“On pricing, it’s likely The Reject Shop will retain its core value proposition – low prices will stay central to its brand,” he said.

“However, with Dollarama’s sourcing power, there’s scope to improve product quality and consistency without necessarily raising prices.

The Reject Shop’s chief executive Clinton Cahn previously said the sale was “really exciting for Australian retail”.

“That would be a win for Aussie customers in the value segment.”

The Reject Shop’s chief executive Clinton Cahn previously said the sale was “really exciting for Australian retail” at a time when the national market was “really tough”.

“(The discounter) is a business that we think has so much opportunity to grow,” he said.

“Our approach has been somewhat incremental. It’s been step by step because we have constraints the way that we’re currently set up. Dollarama will be less constrained.”

It comes after the retail chain’s sales grew 2.6 per cent to $852.7m on a comparable store basis in the 12 months to June 30 last year.

But earnings plummeted more than 40 per cent to $5.4m, while net profits decreased 36 per cent to $4.7m. This is compared to 2016 when they had been as high as $16.6m.

Dollarama owns more than 1600 shops in Canada and also controls a chain of 588 discount stores in Colombia, Guatemala, El Salvador and Peru.

Originally published as Iconic Aussie retailer The Reject Shop a step closer to $259m sale to Canadian giant