Hornby urges shareholders to reject Phoenix offer

AIM-listed model train set maker Hornby reiterated on Tuesday that the offer made by its largest shareholder, Phoenix Asset Management, "significantly undervalues" the company and its prospects.

As a result, its board of directors unanimously recommended that shareholders reject the 32.375p a share offer, which it said "does not reflect an adequate premium for control".

"The Hornby directors unanimously recommend that shareholders should take no action in relation to the offer and should not sign any document sent by Phoenix or its advisers."

Phoenix made an offer on 21 June for the shares in Hornby it doesn't already own, valuing the company at £27.4m, after increasing its stake in the group to 55% triggered a mandatory cash offer.

AJ Bell said Hornby's recommendation that investors reject the offer leaves shareholders with three possible options: they can take the money and run, wash their hands of the whole thing and sell their shares, or reject the offer and give management a chance to prove the turnaround plan can work.

It said the first option would lock in a big loss for many long-term shareholders, as the offer price sits below the current 32.75p. As far as option number two is concerned, it would free the investors from holding shares where there is one dominant institutional investor whose influence would likely overwhelm theirs, assuming the bid is rejected and shares remain quoted.

If shareholders reject the offer as advised, there would be three disadvantages. "It leaves Hornby as a quoted company that has effectively been taken over, given Phoenix’s 55.2% stake. That in turn means investors will have to trust whether management and Phoenix can work together effectively to return Hornby to profit.

"And it means that investors will have to put their faith in yet another turnaround plan at the company, which has not paid a dividend since 2012 and already taken the step of selling and leasing back its Margate headquarters, sometimes (though not always) a sign that a firm is struggling for cash."

At 1113 BST, the shares were down 0.8% to 32.50p.