Menzies answers critics with move into e-commerce

It says the deal will allow it to enter the growing e-commerce parcel market, by acting as a partner for the major parcel carriers in hard-to-reach areas. Menzies says the acquisition is an important step towards "unlocking the potential of the business in daylight hours".

AJG Parcels, which began delivering 20 parcels a day round Inverness, now makes around 9000 deliveries and 800 pick-ups daily, with 140 staff and a fleet of more than 100 GPS-equipped vehicles. Its 13 depots include outposts in Orkney, Lewis and North Uist.

In the year to June 2014 the business turned over £8.75m, slightly down on the previous year, and posted a pre-tax profit of £1.65m, some 20per cent below the 2013 figure.

Karl Burns, analyst at Panmure Gordon, commented: "It is a competitive market they are moving into, there are a alot of players in it, it won't be easy getting into e-commerce distribution, but they do have a near-enough nationwide network in place so they have a decent advantage to start with."

The move, which follows closely on the arrival of new chief executive Jeremy Stafford and distribution director Forsyth Black, comes as Menzies resists a campaign by activist shareholders to break up the 183-year-old Edinburgh-based business.

Mr Black, who succeeded long-serving David McIntosh at Menzies Distribution 12 months ago, said: "The purchase of AJG is an important step in our ongoing journey to build on our newspaper and magazine distribution business. It is especially significant because it allows us to participate in the fast-growing market of parcel delivery and collection."

Six weeks ago two activist funds holding 12per cent of the group's shares began agitating for a review of its dual business structure, which marries a growth business in aviation services with a distribution arm in a mature and declining market.

Kabouter Management, a US investor with a 9 per cent stake in the Edinburgh-based group, and Swiss investment fund Lakestreet Capital Partners which holds 3 per cent, both claim a break-up would unlock value.

At las month's annual meeting, chairman Iain Napier said the board was united in backing the current strategy and praised Mr Stafford, who joined in October last year, for bringing "discipline and focus" to the company's operations. He added that the strong cash generation in the distribution business helped to support the expansion and investment needed in the fast-growing aviation arm, where Menzies is the second biggest player in a global market. At the meeting more than 20 per cent of votes went against the re-election of Mr Napier and finance director Paula Bell, and more than 26per cent opposed the remuneration report.

Mr Stafford said: "This acquisition allows us to collaborate with the national carriers and use our existing footprint, in the more hard-to-reach territories, to act as a cost effective neutral delivery and collection agent."

Mr Burns commented: "It is something they have been looking to do for quite a long time, to diversify and move into alternative revenue streams on the distribution side. It is long overdue and relatively small, but a step in the right direction."

On the campaign to split the business in two, Mr Burns said: "That has been talked about for about 10 years and a lot of clever people have tried to achieve it, but unfortunately, no-one wants to buy and ex-growth distribution business. Personally I don't think it is going to happen - or not anytime soon. Those guys are going to struggle to force any changes through - and this (initiative) will help the (management) cause when it comes to distribution, and help the share price as well."

The shares, which were at 362p just before the shareholders broke cover on April 29, rose 3.25p to 455.5p.