Jeffrey Gould, chief executive of Upton, which has three department stores on Teesside, said the stock market price was inflated. 'Ours is a positive offer that guarantees the future of the business.'
The Reject Shop's results for the 28 weeks to the beginning of October showed pre-tax losses of pounds 2.4m, increased from pounds 884,000 in the previous first half. There was no dividend. The company said sales of low-margin furniture were reasonably strong - turnover was up 13 per cent to pounds 10.3m - but sales of higher-margin giftware were very depressed. Sales of high-margin goods continued to be disappointing in November and December with no uplift until the last few days before Christmas.
The Reject Shop has 31 stores, predominantly in London and the South-east. Mr Gould, who only a year ago joined a new management team to rescue Upton, said the Reject Shop had lost sight of both its client base and product. It also had tremendous cash problems. He added that negotiations had been in progress since July, causing senior management to take their eye off the ball.
He said the company had mistakenly tried to take the product upmarket in the recession. 'We intend to take it back to being a value product.'
Upton's pounds 4.5m four-for-thirty rights issue at 30p a share will help to provide the cash to turn round the business. Mr Gould said the Reject Shop, which will be run as an autonomous trading company, would have an pounds 8m working capital facility.
Anna Vinton, who founded the Reject Shop in 1973, conceded that it had lost its way. 'We came to the conclusion that the company did not have the strength of management or capital to take it forward and refocus it,' she said.
She will step down as joint chairman to become non-executive deputy chairman. She is also investing pounds 300,000 in the rights issue. Anthony Hawser, joint chairman, and John Beer, finance director, have resigned. Ian Steven, a non-executive director of Upton, takes over as finance director.
Mr Gould said there would be some rationalisation of Reject Shop management, but no closures.
Acceptances from directors have been received for 83.1 per cent of the ordinary shares and 92.5 per cent of the issued preference capital.
The terms are three new Upton shares for five Reject Shop shares and four Upton shares for three 10 per cent gross preference shares. There is a limited partial cash alternative.