Logistics firm John Menzies (MNSZ) has pulled out of a deal to sell its distribution arm to DX (DX:AIM). DX’s recent profit warning and a police investigation in June probably did not help the deal’s chances of being completed.
Menzies shares tick up slightly by 2p to 705p on news, whereas DX’s shares have been suspended since the deal was first proposed.
The original deal mooted in March was for DX to acquire Menzies’ distribution business for £60m with Menzies’ shareholders owning at least three quarters of the enlarged DX. This reverse takeover did not sit well with DX’s largest shareholder Gatemore Capital.
The activist investor said the deal was ‘not in the best interests of shareholders’ and a revised deal was proposed. DX would pay £40m in cash plus new shares equal to 65% of the enlarged group.
BACKGROUND TO TODAY'S STATEMENT
However, in an update on Monday, Menzies says that following a trading update from DX in July, it ‘undertook further financial due diligence on DX, as a result of which it became apparent to the John Menzies Board that the combination would be required to be effected on revised terms’.
On the same day, DX issued an update detailing a major overhaul of its board including details that it is in advance talks with Ron Series to takeover as chairman. Series has 25 years experience in transport, logistics and shipping. Current chairman Bob Holt is retiring once these changes have been implemented.
DX had previously warned that its full year earnings growth would be flat after an ‘exceptionally challenging year’ and in February saw its share price dive on announcing that it would not be paying any dividends ‘for the foreseeable future’.
In June more pressure was put on the deal when it emerged that DX was being investigated by the City of London police. A month later the company announced that the police were ‘not proceeding to a full investigation’ which is a tad vague and probably not as convincing as shareholders would have liked.
Menzies continues to believe that there is ‘strategic merit’ to separating its aviation and distribution businesses but has terminated its talks with DX.
DX is to go it alone, proceeding with business transformation by itself. Bob Holt says ‘Our major shareholder and our bankers are supportive of the proposed plans for the business on a stand-alone basis and we have been exploring new financing options with our bankers’.
