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Hornby bid offers little comfort for shareholders

The hobbyist retailer's largest shareholder has been forced to make an offer, after purchasing an additional stake
June 23, 2017

A takeover offer can often be a lifeline for shareholders wanting to get out of an underperforming business. However, in Hornby ’s (HRN) case the matter is a little more complicated. Majority shareholder Phoenix UK Fund has been forced to make an offer for the remaining shares in the toy manufacturer, after purchasing the 20 per cent stake of activist investor New Pistoia Income Fund. Phoenix UK now owns a 55 per cent holding in Hornby.

IC TIP: Accept at 32p

Phoenix acquired the shares from New Pistoia – which had previously tried, and failed, to remove Hornby chairman Roger Banham – for 32p a share. This offer, which values the group at £27.4m, has now been extended to remaining shareholders. That’s a nil premium to the price the shares were trading at the day prior to the offer. Perhaps unsurprising given the poor performance of the hobbyist retailer during recent years. However, Hornby’s board have not recommended the offer, arguing that it undervalues the group and its prospects.

Hornby reported a 15 per cent decline in revenue during the 12 months to the end of March, after management culled around 40 per cent of its product range to focus on its core brands such as Scalextric and Hornby. However, the group did manage to cut costs from scaling-down its business. This meant its operating loss improved to £9.2m, from £13.5m the previous year.

The shares have never substantially recovered since falling off a cliff-edge when management announced the group could breach its banking covenants in February last year. Although it was allowed the breathing space by its bank to avoid this, its recovery plan has so far not galvanised any significant shareholder reaction.

Phoenix UK Fund has said it plans to retain Hornby’s listing on the Alternative Investment Market. The shares’ free-float remains just under 45 per cent, following Phoenix’s purchase of New Pistoia’s stake. However, the former said the hobbyist retailer will benefit from having a single large shareholder with a clear strategy to restore the group to growth.