Menzies confident DX Group deal will go through

Edinburgh-based John Menzies said on Friday its proposed deal to merge its Menzies Distribution division with mail delivery firm DX Group continued to “move forward positively” and it remained confident of a conclusion to the deal during the summer.

That’s despite opposition to the deal voiced last week by activist shareholder Gatemore Capital Management.

Gatemore wrote to the board of DX Group threatening to block its reverse takeover deal with the distribution arm of Menzies “if it is not markedly improved.”

Gatemore said it led a group of shareholders controlling 18% of DX’s shares who were demanding DX “either renegotiate the terms of the deal or terminate discussions.”

If the deal went through, Menzies shareholders would own at least 75% of DX’s issued share capital and Menzies Distribution managing director Greg Michael and finance director Paul McCourt would become group chief executive officer and chief financial officer of DX.

Menzies has long been under pressure from shareholders to separate its two main businesses — news distribution and airport logistics.

In a trading trading update for the first four months of the year in advance of its annual general meeting, Menzies chairman Dermot Smurfit said: “I am very pleased at the progress made so far this year.

“The integration of ASIG is progressing well and I am confident we will be able to deliver on a deal to combine the businesses of DX (Group) plc and Menzies Distribution.

“Our aviation business continues to trade strongly.

“The opportunities that exist to cross sell our new product lines and also to expand into new markets are very exciting and your board looks to the future with increasing confidence.”

Menzies recently completed the acquisition of Orlando, Florida-based aviation and fuel services company ASIG from BBA Aviation for $202 million.

On Friday, Menzies said Menzies Aviation had revenue growth of 12% on a constant currency basis during the four months to April 30.

“Contract gain momentum has continued with notable wins across each region,” said Menzies.

“In the UK, contracts have been secured with Cathay Pacific and Jet2 and in the Americas with Virgin America and Frontier.

“In addition our joint venture with Oman Air is due to start early in the second half of the year at nine airports across Oman.

“The acquisition of ASIG was completed on 1 February 2017 and trading is in line with our expectations.

“Integration plans are on track, the anticipated synergies are being realised and overall we are pleased with the business we have acquired.

“Customer reaction to the acquisition has been positive and the pipeline of opportunities remains strong.

“Our current focus is on the seamless integration of the existing business into Menzies systems and processes, which will provide a strong platform to build the enlarged business.”

The Edinburgh company said Menzies Distribution was performing in line with expectations.

It said the overall sales decline of 3.1% against the same four month period last year was broadly in line with its forecasts, although the rate of decline in the magazine market was sharper than expected.

Menzies added: “Within our retail logistics arm we secured a contract with NHS Scotland, collecting stock from their National Distribution Centre in Larkhall and distributing to hospitals across all of the Regional Health Boards throughout Scotland.

“This contract commenced successfully on 1 April 2017 and builds on the national WHSmith contract which commenced in 2016.

“Our entry into this market is being viewed favourably and the commercial team are following a number of opportunities.

“Our proposed deal to combine Menzies Distribution with DX (Group) plc continues to move forward positively.

“We remain confident of a conclusion to the deal during the summer and will update shareholders at the appropriate time.”