Why The Reject Shop’s $6.68 Cash Scheme from Dollarama Commands Board Backing

Background and Transaction Overview

The Reject Shop Limited (ASX: TRS), Australia's largest discount variety retailer, has announced a proposed acquisition by Canadian value retailer Dollarama Inc. (TSX: DOL) through a scheme of arrangement. The transaction consideration is $6.68 cash per Reject Shop share, representing a significant premium of over 100% to the company's share price prior to the announcement.

This all-cash offer values The Reject Shop's equity at approximately $259 million and implies an enterprise value of around $189 million. The transaction consideration notably exceeds the Independent Expert's assessed value range of $4.80 to $5.24 per share on a controlling interest basis, underscoring the premium Dollarama is offering to shareholders.

Board and Independent Expert Endorsement

The Reject Shop Board has unanimously recommended that shareholders vote in favor of the Scheme, subject to no superior proposal emerging and the Independent Expert maintaining its positive conclusion. All directors have committed to vote their own shares in favor of the transaction.

Kroll Australia Pty Ltd, the Independent Expert appointed to assess the Scheme, has concluded that the transaction is fair and reasonable and in the best interests of shareholders. Their valuation incorporates a control premium and considers synergies available to potential acquirers, excluding any special value unique to Dollarama.

Special Dividend and Tax Considerations

As part of the transaction, The Reject Shop intends to pay a fully franked Special Dividend of up to $0.77 per share, conditional on the Scheme becoming effective and receipt of a favorable class ruling from the Australian Tax Office. This dividend is expected to provide eligible shareholders with franking credits of up to $0.33 per share, potentially enhancing after-tax returns.

Shareholders are advised to seek independent tax advice regarding the implications of the Scheme and the Special Dividend, as individual circumstances may vary.

Next Steps and Shareholder Meeting

The Scheme Meeting is scheduled to be held virtually on Monday, 23 June 2025, where shareholders will vote on the proposed acquisition. Approval requires a majority in number and at least 75% of votes cast in favor. Following shareholder approval, the Scheme must also be approved by the Federal Court of Australia.

Upon implementation, The Reject Shop will be delisted from the ASX and become an indirect wholly-owned subsidiary of Dollarama. Dollarama has expressed intentions to continue The Reject Shop's retail operations, explore integration opportunities, and expand the store network.

Risks and Considerations

While the Scheme offers certainty of value and a substantial premium, shareholders should consider the risks outlined in the Scheme Booklet, including the possibility that the Scheme may not proceed if conditions are not met or if a superior proposal emerges. Additionally, shareholders who do not vote or vote against the Scheme will still receive the Scheme Consideration if the Scheme is approved and implemented.