Canadian Retail Giant Plans Expansion in Australia
The Reject Shop Limited (ASX: TRS) will exit the Australian Securities Exchange (ASX) after two decades following a A$259 million acquisition by Canadian discount retailer Dollarama Inc. (TSX: DOL). The deal values The Reject Shop at $6.68 per share, reflecting a 112% premium on its last closing price of $3.15 on 26 March 2025.
The company’s largest shareholder, Kin Group, which holds 20.8% of shares, has indicated its support for the transaction.
“This all-cash scheme provides attractive value and certainty for all shareholders,” said Steven Fisher, Chairman of The Reject Shop. “The Board believes the proposed transaction will benefit both shareholders and stakeholders of The Reject Shop.”
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From Humble Beginnings to an International Acquisition
The Reject Shop began as a single store in Melbourne over 40 years ago and has since expanded to 390 stores across Australia. The retailer offers a range of products, including food, drinks, household goods, and pet supplies. Despite steady sales growth, earnings and net profit have remained weak in recent years.
Dollarama, which operates over 1,600 stores across Canada and holds a 60.1% stake in Latin American retailer Dollarcity, has been monitoring The Reject Shop for several years. The Australian Financial Review first reported Dollarama’s interest in 2023, though no formal offer was made at the time.
Neil Rossy, CEO of Dollarama, highlighted the strategic opportunity behind the deal.
“With this acquisition, we have a unique and compelling opportunity to bring our differentiated value proposition to a new market which presents a clear path for growth,” Rossy said.
Neil Rossy, CEO of Dollarama
Expansion Plans: 700 Stores by 2034
Dollarama plans to nearly double The Reject Shop’s store count to around 700 over the next decade. The expansion will focus on enhancing product offerings, streamlining operations, and increasing direct sourcing.
Clinton Cahn, CEO of The Reject Shop, sees the deal as an opportunity for further growth.
“There is strong cultural alignment between our teams,” Cahn said. “We look forward to working alongside the Dollarama team to leverage the expertise of a leading value retailer, accelerate our store network expansion plan, and continue helping all Australians save money every day.”
Shareholder Approval and Financial Impact
The deal, structured as a Scheme of Arrangement, requires shareholder approval and court confirmation. If successful, The Reject Shop board intends to pay a fully franked special dividend of up to $0.77 per share, deducted from the final offer price.
Key deal highlights:
- $6.68 per share offer price
- 112% premium to the last closing price
- 117% premium to the six-month volume-weighted average price
- Implied enterprise value (EV) to EBITDA multiple of 8.9x
The Reject Shop shareholders do not need to take immediate action. A Scheme Booklet will be released soon, detailing the Independent Expert’s assessment and the upcoming Scheme Meeting, expected in June 2025.
Pending approvals, the acquisition is set for completion in the second half of 2025.
Market Reaction and Future Outlook
Following the takeover announcement, The Reject Shop’s share price surged 109.52%, reaching at $6.60. The company’s market capitalisation now stands at $117.46 million.
Industry analysts have praised the deal, with Kris Webster, Portfolio Manager at Canopy Investors, stating:
“Dollarama is in a class of its own. It has leading market share in its countries, caters to consumers across the whole population, and exhibits operating margins of more than 20%, over double that of its US peers.”
Challenges and Leadership Changes
The Reject Shop has faced difficulties in recent years. In February 2023, former CEO Phil Bishop abruptly left after just seven months. Since then, former UBS analyst and Chief Financial Officer Clinton Cahn has led the company.
Despite growing sales of $852.7 million in FY24, earnings declined 41% to $5.4 million, while net profit fell 36% to $4.7 million. In contrast, net profits peaked at $16.6 million in 2016.
Regulatory Conditions and Deal Protections
The transaction does not require approval from Australia’s Foreign Investment Review Board (FIRB) but remains subject to customary conditions, including:
- Shareholder and court approvals
- No material adverse change in business operations
- Independent Expert’s conclusion that the deal benefits shareholders
The agreement includes a $2.6 million break fee if The Reject Shop accepts a superior proposal. A reverse break fee of the same amount applies if Dollarama withdraws under certain conditions.
The Future Under Dollarama
Rossy confirmed that Dollarama will reshape The Reject Shop into a more frequent shopping destination for everyday essentials. The Canadian retailer’s direct sourcing and efficient operating model are expected to improve The Reject Shop’s financial performance.
“We will leverage our core strengths as value retailers with best-in-class merchandising, sourcing, and operational expertise,” Rossy said. “With compatible cultures and values, we are confident the business will have an exciting future as Dollarama’s new and complementary growth platform.”
With The Reject Shop now set to become part of a global retail empire, Australian consumers may soon see a revamped shopping experience with a broader product range and improved pricing strategies.
