John Menzies has scrapped the planned £40m merger of its newspaper and magazine distribution arm with DX Group.
The “debt-free” merger, announced in June, would have resulted in yearly savings of £10m.
However, John Menzies said the deal had been called off after it had undertaken “further financial due diligence on DX” following its trading update last month.
In a statement to the London Stock Exchange on Monday, John Menzies said: “Notwithstanding the strong strategic and commercial benefits that would arise from a combination of Menzies Distribution and DX, and despite further discussions with DX following the DX announcement of 14 July, the John Menzies board does not believe it is currently possible to agree a revised set of terms with DX for the combination that would be in the interests of John Menzies shareholders.
“John Menzies has therefore terminated discussions with DX.”
The firm said it still believed there was “strategic merit in and potential shareholder value” in separating its aviation and distribution divisions.
DX announced a major reorganisation of its board in July after warning its full-year earnings would be “flat” after an “exceptionally challenging year”.
It said it would continue with its business transformation on a “standalone basis”, despite believing the deal had “strong strategic logic for all stakeholders”.
DX chairman Bob Holt said: “Our discussions with John Menzies have been constructive and the proposed combination of DX and John Menzies’ Distribution division was potentially highly attractive to both sets of shareholders. However, it has become clear that we would not be able to agree terms that would be acceptable to our shareholders and since we have a strong alternative business transformation plan in place, we have decided that it is the best interests of our shareholders for us to pursue this course.”
He added: “As we were unable to agree suitable terms with John Menzies, we believe a standalone strategy is the right course for our shareholders and we are on the front foot with plans for business transformation and recovery.”
The logistics company’s purchase was thrown into doubt earlier this year when its largest shareholder, Gatemore Capital Management, threatened to block the original £60m “ill-conceived transaction”, saying it would add a significant amount of debt.
In June, Gatemore said it would vote in favour of the merger after the firms renegotiated a price cut deal of £40m on a “debt-free basis”.
Despite its change of heart it has now welcomed the collapse of the deal.
“We are excited about the prospects for DX as a standalone company, especially under the leadership of the new board,” said Gatemore CIO and managing partner Liad Meidar. “Each of the four new directors brings significant sector experience. Ron Series and Lloyd Dunn can, in fact, be directly credited with the remarkable turnaround of Tuffnells, DX’s main competitor in freight,” said Gatemore CIO and managing partner Liad Meidar.
“We appreciate Bob Holt’s stewardship of the company throughout a challenging period and believe that the board arrived at the right conclusion with the Menzies transaction. We strongly believe that with leading positions in document exchange, secure delivery and IDW freight, DX is well positioned to thrive on a stand-alone basis.
“We stand firmly behind the new team and are confident they will achieve tremendous success at DX.”