Logistics firm John Menzies is in advanced talks to drive through a reverse takeover of parcels business DX Group by its distribution division.
The Edinburgh-based newspaper distributor and baggage handler, which recently acquired US aviation services firm ASIG in a “transformational” deal worth $202 million (£162m), has been under investor pressure to consider a break-up of its business.
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It said there was “strong strategic logic” to pursue a deal with DX to create a “logistics and parcel carrier of enhanced scale and capability”, with the two firms predicting the combination could deliver annual cost savings of up to £12m.
Menzies’ corporate affairs director John Geddes told The Scotsman that much of the synergies would come from property, vehicles and back-office operations, and he said there would be limited impact on the distribution unit’s 3,500-strong workforce.
Geddes added: “Menzies Distribution is still 90 per cent a newspaper and magazine wholesale business, and DX don’t do any of that. We’ll still be going to 25,000 retailers every morning.”
Although both groups stressed that there was “no certainty” that the tie-up would take place, they are targeting completion of the deal during the summer, subject to shareholder approval.
Menzies Distribution has been expanding its presence in the parcels market. Its boss, Greg Michael, is set to become chief executive of DX, with the Edinburgh firm’s finance director, Paul McCourt, becoming chief financial officer. DX finance director Daljit Basi would be an executive director.
In a statement, the two groups said: “The proposed transaction structure enables both DX and John Menzies shareholders to share in the significant value created by the combination of DX and Menzies Distribution, whilst increasing significantly the liquidity of DX’s ordinary shares and enabling the divestment of Menzies Distribution into a separately quoted company in line with John Menzies’ strategy.”
If the tie-up went ahead, DX would pay £60m in cash for Menzies Distribution, along with the issue of new shares representing 80 per cent of its issued share capital. DX currently has a market value of about £17m.
The deal would see Menzies’ shareholders owning at least 75 per cent of DX, with a further 5 per cent held by its pension scheme. Because the proposed transaction constitutes a reverse takeover, shares in DX have been suspended from trading on the Alternative Investment Market.
The news sparked an angry response from investment firm Gatemore Capital Management, which owns 11 per cent of DX.
Gatemore managing partner and chief investment officer Liad Meidar said the tie-up “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.”
Zeus Capital is acting as financial adviser to DX, with Rothschild advising Menzies.