News / Gatemore chief piles on the pressure as DX Group unveils merger plan

DX Group’s largest shareholder has criticised the logistics operator over a proposed merger with John Menzies Distribution amidst poor first-half results.

The move came just over a week after it called for a shake-up of the company’s board.

DX Group announced today it had begun talks with John Menzies Distribution over a potential £60m acquisition, a deal he said could create £8m-£12m of cost synergies a year.

Chief executive Petar Cvetkovic said: “We believe the combination of the businesses has strong strategic logic for all stakeholders and represents an opportunity to deliver significant value to both companies’ shareholders.”

However, chief investment officer and managing partner of Gatemore Capital (which holds 11.3% of DX Stock) Liad Meidar said the proposed deal looked like a “bad deal” for DX shareholders, describing it as a “face-saving” exercise for the board.

“We are highly suspicious about the timing of the announcement and the board’s motivations,” said Mr Meidar.

“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.

“It seems like an egregious case of the board front-running the emergency general meeting (EGM) and force-feeding a deal which is not in the best interest of shareholders.”

Mr Meidar suggested the timing of the announcement was an “attempt” to distract from “terrible” operating results. DX reported a 30% year-on-year drop in EBITDA to £3.9m for the six months to December, down from £5.6m in the same period in 2015, despite seeing revenues increase £1.1m year-on-year to £142.7m.

The company blamed margin erosion and higher-than-expected costs of integrating five sites into a single site in Swanley – part of its OneDX integration programme. However, Mr Meidar said Gatemore had previously identified systemic issues with OneDX.

Mr Cvetkovic said results had been impacted by trading pressures, which DX highlighted in February, and had led the company to initiate a wide-ranging review of its operations.

“We are pleased with progress and encouraged by recent new business wins, including a major contract with Avon UK,” said Mr Cvetkovic. “Our pipeline of new business is standing at its strongest level in recent years.”

However, this assertion was also questioned by Mr Meidar, who said the business win fell under the company’s lower-margin logistics unit – the division was the only one within the group to report a year-on-year decline in revenues, down from £8.6m to £6.9m.

“It will take many such wins to make up lost ground in freight and document exchange,” he added.

As reported by The Loadstar on 21 March, Mr Meidar called for an EGM of DX shareholders to vote on replacing chairman Bob Holt and non-executive director Paul Murray, citing the express delivery operator’s poor performance.

“The announcements today make it clearer than ever that it is time for a new board to take over,” he continued.

“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.”