John Menzies Distribution and DX merger collapses


In a slightly shocking development, the merger deal between the UK distribution and air services business, John Menzies, and the parcel carrier, DX Group, has collapsed.

The original plan was to merge the ‘Distribution’ business of John Menzies into DX, creating a larger, better resourced company that could expand effectively into e-commerce operations.

There had already been bumps in the road. DX Group had already been investigated by the police over alleged irregularities in their legal document handling business. There had also been disagreements with some shareholders over the terms of the deal, leading to a renegotiation. However, by early June, new terms had been agreed and a merger to create a new medium-sized provider in the UK market and beyond seemed on course.

However, DX Group released a trading update last month. It did not have a great deal of detail other than to state that revenue would be “approximately £292m and adjusted profit before tax (before exceptional items) in line with market forecasts”. It also announced that the Chief Executive Officer and Chief Financial Officer would be leaving the company.

This seems to have triggered a reaction from John Menzies, who “undertook further financial due diligence on DX” leading them to the opinion that the terms of the deal had to be “revised”. Essentially John Menzies pulled the plug on the deal, stating; “Notwithstanding the strong strategic and commercial benefits which would arise from a combination of Menzies Distribution and DX, and despite further discussions with DX following the DX announcement of 14 July 2017, the John Menzies Board does not believe it is currently possible to agree a revised set of terms with DX for the Combination which would be in the interests of John Menzies shareholders. John Menzies has therefore terminated discussions with DX.”

The question does arise over what John Menzies found through the due diligence process to change their opinion of DX Group.

Both DX Group’s and John Menzies’ recent interim results indicate that the they are encountering tough market conditions, with John Menzies Distribution seeing profits “broadly flat” in contrast to their aviation services business.

The investment firm, Gatemore Capital, which owns 21.3% of the equity of DX Group, appears happy, stating that they are “excited about the prospects for DX as a stand-alone company, especially under the leadership of the new board”.

Yet it would appear from the whole episode that both companies are viewed by their own managements as too small to compete over the long-term, and that they both need transformational strategic action.

Source: Transport Intelligence, August 15, 2017

Author: Thomas Cullen

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