EDINBURGH-based John Menzies appears to have accepted a big cut in the valuation of its newspaper and magazine distribution arm to help overcome opposition to a plan to offload the division to DX Group.

Directors of the two groups announced they had agreed revised terms for a reverse takeover of Menzies Distribution after an activist investor said the original proposal undervalued Slough-based DX.

The revised deal would see DX pay Menzies £40m. It would leave shareholders in DX with 35 per cent of the enlarged group.

In March the groups announced they were discussing a deal under which DX would pay £60m for Menzies Distribution. This would have given DX shareholders 20 per cent of the enlarged business.

The planned deal met with vocal opposition from Gatemore Capital Management, which said it undervalued DX.

Gatemore, which has a 21 per cent stake in DX, was joined by holders of a further seven per cent of the group’s shares in its attack on the plan.

Yesterday the managing partner of the London-based asset manager, Liad Meidar, said: “We were pleased to have been able to work productively with both the DX and Menzies boards to come to an outcome that significantly improves the terms of this deal for all shareholders.”

Noting that DX Group would take on £40m debt to fund the revised deal rather than £60m under the original plan, he added: “The reduced debt load on the combined company, with a much-improved equity split, better reflects the inherent value in DX Group and will provide the company with a much healthier financial footing.”

John Menzies announced yesterday that it had decided to tap investors for £30m through a share placing, mainly to institutions.

This could be used to support growth at the group’s aviation support business.

Menzies directors appear satisfied the deal remains attractive.

Shareholders in the group would get 60 per cent of the enlarged distribution business under the revised proposal, against 75 per cent previously.

In a joint statement, Dermot Smurfit, chairman of Menzies and Bob Holt, chairman of DX, said: “We are pleased to have reached this agreement and believe that the revised terms of the proposed transaction represent an attractive opportunity for all stakeholders of both companies.”

In March the boards of DX and John Menzies said they believed the combination had strong strategic logic for all stakeholders and could deliver significant value to both companies’ shareholders.

With shares in John Menzies closing up 9.5p at 712.77p yesterday there was no sign of investor unhappiness with the board’s judgement.

The deal would allow Menzies to address longstanding calls from significant investors for the group to separate its distribution and aviation businesses, which serve very different logistics markets.

Menzies’s corporate affairs director John Geddes noted in March the rationale for keeping its aviation and distribution businesses had weakened in recent years. The aviation business can support itself without the cashflow generated by the distribution arm.

Yesterday, an analyst at Shore Capital, Martin Brown wrote: “We believe there is significant unrecognised value with John Menzies, the successful completion of this transaction should act as the catalyst to see this value realised for shareholders.”

Menzies and DX expect the enlarged distribution group to generate around £10m synergies annually, against £8m to £12m in March.

Menzies’s newspaper and magazine distribution arm has faced challenges amid the fall in print sales of some titles.

The John Menzies pension scheme would get five per cent of the enlarged distribution business. Around 17 per cent of John Menzies’s defined benefit pension scheme would transfer to it.

Menzies and DX hope to complete the tie up this summer, if they win approval for any proposal that is put to shareholders.

Gatemore has given an irrevocable commitment to support the revised proposal if it is put to a vote.

Chicago-based Kabouter Management has a 12 per cent holding in John Menzies and has questioned its dual business model.

Menzies family members own 13.55 per cent in total.