Under investor pressure, Menzies has decided to hive off distribution business and sell to DX
Companies: DX Group, John Menzies
Shares in John Menzies rose 10% early on Friday after the Scottish firm told investors that it was in talks with logistics company DX Group (+3%) to sell its distribution division following calls by shareholders to separate it from the aviation division.
The Boards of the two companies said they believed the deal had strong strategic logic for all stakeholders and represented an opportunity to deliver value to all shareholders.
"The boards of DX and John Menzies believe that the combination would benefit the customers of DX and Menzies Distribution through the creation of a logistics and parcel carrier of enhanced scale and capability operating through a 24 hour UK wide logistics network."
The move is estimated to generate cost synergies of around £8-£12m per year, with DX paying £60m in cash for the business, funded by new borrowings of the enlarged Group.
Menzies has a defined benefit pension scheme, and an estimated 17% of that would transfer to DX, whilst Menzies' pension scheme would receive 5% of the issued share capital of the enlarged company.
Menzies had been under pressure from shareholders to renew and revamp its business after investors criticized operations following several warnings and a string of departures of top executives. Shareholder Value Management, an activist investor, acquired 7% of Menzies last year and urged the company to break up its two divisions.
Zeus Capital, which is advising DX Group on the merger, said the proposed transaction would see DX acquire Menzies for £60m in cash and the issue of new DX ordinary shares representing 80% of DX’s issued share capital. The firm added that after the difficulties the firm has faced this year, confirmation that Company will hit FY17 estimates "is welcome".
"Further positive news comes in the form of the pipeline that is the strongest it has been for some time at c. £30m."