ScS expects to delist from the stockmarket at the end of January if shareholders back Poltronesofà‘s £94m takeover.
29 January will be the final day for trading shares, with the listing suspended the following day followed by delisting on 31 January.
Various administrative and shareholder votes still need to be completed, including the court and general meetings on 21 December. 75% of shares need to be cast in favour of the offer.
The scheme document sent to shareholders outlined that the chain’s board felt that investors had consistently undervalued it, with its performance not being reflected in its share price.
‘ScS was admitted the London Stock Exchange’s main market for listed securities in January 2015. The rationale for the IPO was, among other things, to enable the owner at the time to partially monetise its holding while also developing a liquid market for its retained ScS shares going forward. A key part of the investment case for IPO investors was the high dividend yield on offer, with ScS targeting a 8% dividend yield for the year ended 25 July 2015 at a time when interest rates were significantly lower than today. The ScS board believed that a high dividend yield was achievable on IPO due to the cash generative and negative working capital model of ScS combined with an attractive or low IPO valuation. Since the IPO, the ScS board believes that ScS has generally performed well despite numerous macroeconomic challenges including Brexit and Covid-19 and currently the high inflationary and higher interest rate environment. However, the ScS board believes that this performance has generally not been reflected in the ScS share price and ScS has struggled to improve the low market valuation from IPO despite developing a well-regarded track record as a listed company with investors and growing cash resources. On 6 January 2021, Steve Carson joined the ScS Board as chief executive officer. Since that date, under Steve’s leadership, ScS has implemented a refreshed strategy with the aim of driving future growth alongside a revised purpose for the ScS Group of ‘helping create the home you love’. The ScS board believes that significant progress has been made against this refreshed strategy including, among other things: developing a new format store design and commencing rollout of it across the estate; the acquisition of Snug to expand the ScS Group’s offering and increase market share; and refreshing and launching new branding and advertising. As a result, ScS has continued to gain market share helping to cement its position as the UK’s second largest upholstered furniture retailer. In the short term, the ScS board remains cognisant of the challenging economic environment facing ScS’s customers, which the ScS board expects to continue throughout 2024. However, the ScS board is confident that the ScS group’s strategy and strong balance sheet will enable it to continue to trade resiliently and grow market share. The ScS board further believes that this will place ScS in a strong position for when the economic environment improves. Nevertheless, based on ScS’s history since the IPO, the ScS board is not confident that this anticipated progress will necessarily be recognised in appropriate share price appreciation. In the ScS board’s view, this is due to a number of factors including; the lumpiness and sometimes unpredictability of big ticket retail which is unattractive to some public market investors; the IPO positioning of ScS as an income stock when small cap companies are typically growth-focused companies and noting the current significantly higher interest rate environment; the poor track record of some comparable retailers; and the failure of investors to properly value ScS’s cash resources. The ScS directors believe that the ScS shares generally have low levels of liquidity which makes it difficult for ScS shareholders with larger holdings to realise their investment and acts as a barrier to certain investors who require a significant holding to become a ScS shareholder. Against this backdrop, in considering the terms of the acquisition, the ScS directors have taken into account a number of specific factors, including: that the terms of the acquisition (including the permitted dividend) represent an attractive premium in cash for ScS shareholders; that Poltronesofà will bring strategic benefits to ScS, by leveraging its significant, pan-European industry expertise and providing the capital necessary to accelerate ScS’s strategy from what would be possible as a public company. In this regard, the ScS board welcomes the statement by Poltronesofà that it is highly supportive of ScS management’s vision for the business and the long-term ambitions of being the UK’s best value-for-money home retailer; that Poltronesofà recognises the high quality of the employees and the strength of the management team at ScS and their importance to the success of ScS following the acquisition. In addition, that Poltronesofà does not intend that there will be any material headcount reductions as a result of the acquisition; and the acquisition allows ScS shareholders to realise their full investment in ScS for cash in the near-term at an attractive valuation, which recognises the quality of ScS’s underlying business, cash resources and prospects under its refreshed strategy.’
