DX eyeing merger with John Menzies’ Distribution division
The boards of DX Group and John Menzies have announced today (31 March) that they are in discussions regarding the potential combination of DX and John Menzies’ Distribution division.
In a joint statement, the boards estimate that “the combination would generate cost synergies in the range of £8 million to £12 million per annum”.
The plan is for DX to buy Menzies Distribution on a cash and debt free basis, comprising £60m in cash and the issue of new DX ordinary shares “representing 80% of DX’s issued share capital as enlarged by the Transaction”. The cash consideration will be satisfied by new borrowings by the Enlarged Group.
The proposed board of the merged entity have a new chairman and new independent non-executive directors. Greg Michael and Paul McCourt, currently Managing Director and Finance Director, respectively, of Menzies Distribution, would become Group Chief Executive Officer and Chief Financial Officer of DX. Daljit Basi, currently Finance Director of DX, will become an Executive Director.
Greg Michael was appointed Managing Director of Menzies Distribution on 1 January this year. He has previously held senior positions in DHL and Deutsche Post.
The Boards of DX and John Menzies currently anticipate the transaction will be completed during the summer of 2017. The company added that: “Discussions are ongoing and there can be no certainty that a transaction will occur.”
DX Group also announced its latest interim results today, for the six months up to 31 December. Revenue was up slightly on 2015, from £141.6m to £142.7m – but a profit of £1.3m in 2015 has dipped to a loss before tax and exceptional items of £500,000.
Parcels & Freight revenue was up 2.8% to£80.3m, driven by strong volume growth at DX 2-Man (two-man deliveries) but flat growth in DX Courier and DX 1-Man. Mail & Packets revenue dropped 3.6% on a like-for-like basis, and logistics revenue decreased by £1.7m to £6.9m.
Commenting on the results (and their relevance to the planned Menzies tie-up), Petar Cvetkovic, Chief Executive Officer, said: “Results have been impacted by the trading pressures reported in February and we have since initiated a wide-ranging review of the Company’s operations to improve financial performance and drive revenues. We have also significantly strengthened our senior management team and have been working with a business transformation specialist since mid-January.
“We are pleased with progress with recent initiatives and are encouraged by recent new business wins, including our major contract with Avon UK. Our pipeline of new business is also currently standing at its strongest level in recent years.
“The Board remains highly focused on implementing measures to turnaround business performance and in addition is currently in discussions regarding the potential combination of DX and the Distribution division of John Menzies. We believe that the combination of the businesses has strong strategic logic for all stakeholders and represents an opportunity to deliver significant value to both companies’ shareholders. We will provide a further update in due course.”
The timing of the DX Group/Menzies announcement is interesting. Last week, Gatemore Capital Management – the largest single shareholder in the DX Group – requested DX to convene an EGM and also called on the Chairman, Bob Holt, and the Non-Executive Director, Paul Murray, to step down.
Gatemore was dissatisfied with the decline in DX share values and contended that “consensus amongst DX’s largest shareholders that board-level change is required”.
UPDATE
Gatemore has sent the following statement to Post&Parcel regarding the DX/Menzies announcement:
“On the surface, the proposed combination of DX Group and John Menzies’ Distribution division looks like a bad deal for DX shareholders and a face-saving exercise for the DX board. We are highly suspicious about the timing of the announcement and the board’s motivations around it. They have already destroyed 90% of DX’s market value. Now they are further compromising shareholders by announcing a deal with so many loose ends and suspending trading on the shares indefinitely. It seems like an egregious case of the board front-running the EGM and force-feeding a deal which is not in the best interest of shareholders.
“Furthermore, the timing of this announcement seems like an attempt to distract from terrible operating results. The systemic issues that we previously identified with the Company’s OneDX integration programme remain. While DX recently announced a new business win, it falls under its lower margin logistics unit. It will take many such wins to make up lost ground in freight and document exchange.
“The announcements today make it clearer than ever that it is time for a new board to take over. The four nominees at the EGM have some of the best track records in the sector. We are optimistic that this exceptional team will properly assess all strategic alternatives while implementing a credible long-term plan to turn around the business and restore it to a higher level of profitability.”
