VULTURES CIRCLING SURFSTITCH AS ONE OFFER REJECTED
Written on the 2 November 2016 by Nick Nichols
THE vultures have begun circling action sports online retailer SurfStitch (ASX:SRF) with the company today revealing it has rejected an unsolicited offer from a major shareholder as too weak for consideration.
The Gold Coast-based company, which has seen its shares smashed over the past year following steep profit downgrades and a string of losses that are expected to continue this year, says it has received a non-binding indicative buyout proposal for the company for 20c a share.
The proposal values the company at $55 million, or a quarter of the $214 million value placed on it when it floated at the end of 2014.
The proposal has come from Coastalwatch Pty Ltd, which is linked to Kim Sundell's Three Crowns Media Group, the Sydney-based company that operates a host of surfing websites and magazines.
SurfStitch has revealed that interests associated with Coastalwatch are already major shareholders of SurfStitch with a 10.4 per cent stake.
Coastalwatch is one of the principal claimants in legal action against SurfStitch in relation to an alleged breach of contract by the company last financial year.
SurfStitch says it has rejected the buyout proposal on several grounds, including the ongoing litigation by Coastalwatch and 'the highly conditional nature of the indicative proposal, including conditions which are not capable of being satisfied by the company'.
"The indicative price of 20c per share contained in the Coastalwatch indicative proposal, although slightly above the company's most recent 30 day VWAP of 19c per share, does not, in the board's view, reflect an appropriate premium for securing control of SurfStitch," it says in a statement to the ASX.
"Accordingly, the board does not propose to engage with Coastalwatch in respect of the indicative proposal as received and shareholders are advised that they are not required to take any action."
The offer is significantly lower than the price at which SurfStitch shares were trading this time last year, above $2.
There is also no indication whether any of the talks the company has conducted with potential suitors include former SurfStitch CEO and company founder Justin Cameron who left the helm in March to pursue a possible private equity buyout of the group.
SurfStitch says the Coastalwatch proposal is one of several unsolicited, non-binding and indicative expressions of interest it has assessed as part of the second stage its strategic review.
SurfStitch is likely to be grilled on the proposals at the annual general meeting on November 16, which is being held in the company's traditional heartland of Sydney's northern beaches at the Manly Novotel.
As part of its business review, SurfStitch is selling its Surf Hardware International business.
"The sale process is well advanced and the company is considering a number of proposals and alternative options for that business," the company says.
As part of the stage two review, SurfStitch has engaged 333 Capital as advisor and has confirmed its focus on cost reductions.
SurfStitch, which posted a $154.7 million loss in FY16 driven to some extent by $99.3 million in goodwill impairments, is also facing a potential class action by shareholders in relation to the sufficiency of disclosures by the company about its financial performance since listing at the end of 2014.
SurfStitch shares traded as high as 20c this morning before settling back to 18c, up 1c, by the midday session.
Author: Nick Nichols