The Reject Shop is heading into foreign hands with premium-priced $259m offer from Canada’s Dollarama

The Reject Shop may be best known for its bargain-basement prices on everyday items but it has managed to attract a top-shelf takeover bid from a foreign suitor.

The company on Thursday revealed it has agreed to a $259 million offer from Canada’s Dollarama priced at $6.68 a share — a whopping 112 per cent premium to its previous closing price of $3.15.

The offer had sent its shares soaring 110.2 per cent to $6.62 by 9am.

The Reject Shop was founded by Ron Hall and John Shuster in 1981, with the first shop opened in the Melbourne suburb of South Yarra. Over more than 40 year it has grown its store network to almost 400 and 5000 staff.

The company’s board has already backed the binding scheme implementation agreement and largest shareholder Kin Group, which controls almost 21 per cent of the register, has also agreed to sell into the offer.

Shareholders will receive a special fully franked dividend of up to 77¢-a-share if the deal is completed.

Market-watchers have previously questioned The Reject Shop’s executives on the possibility it could become a target of major foreign discount retailers.

Chair Steven Fisher said the bid from Dollarama marked a milestone in The Reject Shop’s history.

“Attracting an offer from Dollarama, a recognised leader in the value retail market, is testament to both the meaningful improvement that our incredible team has made to our business over the past few years as well as the significant growth potential that exists for The Reject Shop,” Mr Fisher said.

“The board believes the proposed transaction will benefit both shareholders and stakeholders of The Reject Shop and is in line with the board’s priority to deliver shareholder value.”

Chief executive Clinton Cahn said the transaction presented multiple opportunities to grow The Reject Shop..

“There is strong cultural alignment between our teams and 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,” Mr Cahn said.

The bid from Dollarama comes seven years after Kin Group, owned by Pact packaging magnate Raphael Geminder, launched its own unsuccessful attempt to take over The Reject Shop. Then CEO Bill Stevens rejected the $78m bid as a low-ball offer amid a profit downgrade and accused Mr Geminder of trying to get the retailer “on the cheap”.

Dollarama was founded in 1992 and is based in Montreal. It is listed on the Toronto Stock Exchange and has 1601 stores across Canada selling a broad range of value-focused consumable products, general merchandise and seasonal items.

It also has a 60.1 per cent interest in Dollarcity, a growing Latin American value retailer that has 588 stores in Colombia, Guatemala, El Salvador and Peru.

Chief executive Neil Rossy said growth into new territories was a key objective for Dollarama.

“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 through an established platform,” Mr Rossy said.

“Together, we will leverage our core strengths as value retailers with best-in-class merchandising, sourcing and operational expertise.

“With compatible cultures and values, we are confident that the business will have an exciting future as Dollarama’s new and complementary growth platform.”

The Reject Shop last month reported half-year sales of $471.7m — up almost 3 per cent on the same period a year earlier — and a 10 per cent jump in profit to $15.9m.