Gatemore withdraws DX EGM request

The largest single investor in DX Group, Gatemore Capital Management, has announced it has withdrawn its request for an EGM for DX shareholders in light of the planned merger between DX and Menzies (that it opposes).

As previously reported by Apex Insight, Gatemore holds 11.3% in DX Group. In Late March it called for an EGM and a restructure of the Board after as massive fall in its share value. On the 31st March the board of DX announced that they were in talks with John Menzies regarding the potential merger of DX and Menzies Distribution division.

Gatemore have released a statement saying, “With the announcement of talks between DX and John Menzies, the purpose of the EGM has been thrown into confusion. While Gatemore firmly opposes this reverse takeover, Gatemore does not intend the EGM to be a referendum on this proposed deal.”

The shareholders also released a copy of a letter it sent to DX directors. Gatemore stated, “We have been in close contact with a number of DX shareholders. Some have reached a point of fatigue with DX and simply want a way out sooner rather later. Those shareholders believe it would be best to maintain the status quo and to give this deal a chance to be consummated as it is. In contrast, other shareholders, including Gatemore, believe that the current deal is unattractive and that it would be best to install new leadership as soon as possible. We believe a new board would not close the door on any strategic alternatives but instead would serve to improve all possible outcomes.

“There are also shareholders in the “middle ground” who believe that the current deal is suboptimal but that the existing process should result either in new bidders coming to the table or the negotiation of more attractive terms with Menzies.”

Gatemore said that not only does it “oppose the proposed transaction between DX and Menzies as it stands” but it also believes that together with a group of like-minded shareholders it has sufficient votes to block a deal.

However, Gatemore said that “in the spirit of collaboration”, it wants to “give room for the ‘middle ground’ view to be tested”.

Gatemore added: “If a substantially better deal does not emerge, we believe the current one will be blocked, at which point shareholders will coalesce around changing the Board. We have built our position in DX with a long-term view and are willing to be patient to achieve full value.”

Gatemore also informed the DX directors that it has engaged AlixPartners to provide a third-party assessment of the proposed transaction – and the findings cast some doubt over the supposed benefits of DX/Menzies merger.

In particular, it suggested that Menzies Distribution’s “core business of distributing newspapers and magazines is both low margin (EBITA margin of 2.0%) and declining” and “not an attractive business at its core”.

Gatemore added: “We are naturally cautious about a transaction which adds a significant amount of debt and dilutes shareholders by 80%. We are also cognisant that any merits of the proposed transaction with Menzies rely on achieving meaningful operating synergies which have all too often been elusive in this sector.”

The Gatemore statement concluded, “We are resolute in our belief in the upside potential of DX, and we are not willing to forfeit that potential for a misconceived merger. We are determined to achieve full value for DX, and we are willing to be patient.”  
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