Major DX shareholders outline objections to Menzies deal

A group of major shareholders in the DX Group, led by Gatemore Capital Management, have sent a letter to the Board outlining their opposition to the proposed reverse takeover by John Menzies.

Between them, the signatories control 18% of DX common stock.

In a statement, Liad Meidar, Managing Partner at Gatemore Capital Management, said: “The proposed reverse merger grossly undervalues DX and its potential to recover from the current nadir in profits. We recognise that the Board of DX Group can structure the proposed deal with Menzies to avoid a Special Resolution (requiring 75% shareholder approval) and push through the deal with a simple majority.

“As such, we felt compelled to make clear that we believe that a majority of the shares which vote will vote against this deal as it stands. In a shareholder vote, our analysis suggests that only 60% of shares will be voted. Having spoken to nearly all of DX Group’s large shareholders, we firmly believe that more than 30% of the shares will vote against the proposed reverse takeover with John Menzies’ distribution business.

“While only 18% of DX Group shares are represented in this letter, we have spoken with a further 20% of shareholders who have expressed discontent with this deal. We believe that DX has significant value to it, but that it must either be unlocked before a deal is consummated or the terms of any deal must reflect the future value of DX.”

As previously reported by Apex Insight, Gatemore Capital has expressed its lack of confidence in the current DX leadership and has put forward proposes for new faces on the board.

The Gatemore statement also included the text of the letter sent to the DX Board, in which the shareholders argue that “there are two main reasons why DX profits have fallen precipitously: (i) ongoing erosion in the Document Exchange and (ii) declining performance of DX Freight”.

The letter continued: “While the former may be in a secular decline, we believe DX Freight presents meaningful upside to current investors if it were to be either sold or fixed.

“It is critical that current DX investors, who have watched the share price drop 90% and witnessed current management lose £200 million of value, realise the full benefit of a spinoff or turnaround of DX Freight.  To consummate the current deal with Menzies and then address the problem with Freight afterwards will result in the current shareholders receiving only one-fifth of this benefit.

“DX Freight’s main competitor Tuffnells reported 8% operating margins for the 12 months to February 2017.  By bringing DX Freight to even half of those operating margins, we estimate that DX can achieve annual EBITDA of £20-30m within two to three years – taking into account the ongoing decline in Document Exchange.  This would result in a share price of 35 – 70p which would be far superior to our expected outcome of the current deal with Menzies, which not only relies on often-elusive synergies, but adds an unwelcome pension liability.”  
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