JOHN Menzies has scrapped plans to merge its distribution arm with DX Group after a recent profit warning issued by the logistics group made the cash and shares deal agreed in June less appealing.
Menzies said it remained convinced of the merits of separating its aviation and distribution divisions, but the DX deal would not be progressed.
The Edinburgh group had planned to change its structure by selling off its distribution business to DX after its aviation division was expanded with the $202 million acquisition of Florida-based air handling firm ASIG.
But in a trading update on
July 14, DX said it would report
flat earnings for the 12 months to June 30 after an “exceptionally challenging year”.
Menzies then undertook further financial due diligence, concluding the revised terms would be required to complete the merger.
In a statement to the Stock Exchange Menzies said it “does not believe it is currently possible to agree a revised set of terms with DX … which would be in the interests of [our] shareholders”.
It added that “notwithstanding the strong strategic and commercial benefits which would arise from a combination” and
further discussions between the companies, it had decided to
terminate discussions with DX.
In March it was announced DX would buy Menzies’ distribution business in a reverse takeover comprising £60m in cash and new shares representing 80 per cent of the new business.
Amid pressure from Gatemore Capital, an activist investor in DX, a revised proposal was announced in June, for £40m in cash and
65 per cent of DX’s share capital.
In its own statement to the Stock Exchange, DX acknowledged the companies had been unable to agree suitable terms.
“As a result, it believes it to be in the best interests of DX shareholders to proceed with business transformation on a standalone basis,” said the company.
Before talks opening with DX, Menzies had resisted investor pressure to split the company for a number of years, with Chicago-
based Kabouter Management, Switzerland’s Lakestreet Capital Partners, and Frankfurt-based Shareholder Value Management all calling for the aviation and distribution arms to be separated.
But changing dynamics, driven by the growth of its aviation division, and e-commerce sales transforming the logistics market, led the board to conclude the
separation of its units offers the best value for shareholders.
John Menzies said it continued to believe there is “strategic merit in and potential shareholder value to be created” by separating its
aviation and distribution divisions into two independent businesses, at the appropriate time.
For the year to December 31 the aviation division has revenue of £220m, with the distribution business £1.2 billion.
Menzies said the acquisition of ASIG, which completed on February 1, will be “materially earnings enhancing in the first full year”.
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