Surfstitch rejects takeover bid

A legal battle between two surfwear companies has led to a rejected takeover bid for one of Australia’s worst performing stocks of 2016.

SurfStitch

A legal battle between two surfwear companies has led to a rejected takeover bid for one of Australia’s worst performing stocks of 2016.

Surfstitch directors say the will not engage with Coastalwatch and Crown Financial, the suitors behind a $55.4 million takeover bid made amid an ongoing licensing dispute.

In a statement to the ASX, Surfstitch told shareholders yesterday it had received “a number of unsolicited, non-binding and indicative expressions of interest, which are being assessed as part of a strategic review”, adding that the company had hired 333 Capital to advise on its strategic options.

“None of these (offers) is at an advanced stage and there is no assurance that any will lead to a transaction,” Surfstitch said.

The board chose to single out the 20c-a-share bid from Coastalwatch, which y owns 10.4 per cent of the company, saying it was “highly conditional” and “does not reflect an appropriate premium” for the retailer.

The board pointed to the 30-day average trading price of 19c.

Shares in Surfstitch jumped as much as 14.2 per cent to touch the 20c offer price early in yesterday’s session, but ended the day at 18c.

The offers punctuate a horror year for the company, which sits as the worst performing stock on the All Ordinaries index after losing more than 90 per cent of its value in 2016. The takeover bid also makes for grim reading when the company’s historical market capitalisation is considered — Surfstitch listed in December 2014 with a market cap of $215m, it peaked at $544m last December and now sits at a desultory $51m.

Investors have been left disappointed by a number of guidance downgrades and the unexpected departure of co-founder and chief executive Justin Cameron in March.

Mr Cameron was expected to launch a bid for control of the company following his departure and it is unclear whether he is one of the suitors alluded to by Surfstitch yesterday.

Analysts have abandoned their coverage of Surfstitch, with Morgan Stanley recently signing off with a final note that revealed an underweight rating and a 20c price target.

“Uncertainty around the historical performance and lack of confidence in the level of sustainable revenue was the reason we turned negative,” analyst John Stavliotis said in his final note on Surfstitch.

“In our view, the risks remain high due to a strategy to reduce discounting while the business is burning through cash at an accelerating rate.”

Surfstitch will hold its annual general meeting in Sydney on November 16.