British delivery groups DX and Menzies Distribution today announced a possible merger that could signal further consolidation of the fragmented UK express and parcels market.
If it goes ahead, the combination would be the latest significant takeover in the British CEP market following FedEx’s takeover of TNT, which has a large UK business, and Deutsche Post DHL’s acquisition of UK Mail.
DX and John Menzies plc announced jointly this morning that they are in talks over a possible combination of DX and Menzies Distribution that could be completed by this summer. DX would buy the Menzies business for GBP 60 million in a ‘reverse takeover’ deal involving issuing new DX shares to Menzies shareholders.
In future, current DX shareholders would own, in aggregate, 20% of DX's issued share capital, John Menzies shareholders would own, in aggregate, at least 75% of DX's issued share capital and up to 5% of DX's issued share capital would be owned directly by John Menzies' pension scheme.
If an agreement is reached, Greg Michael, a former DHL manager who became head of Menzies Distribution in January this year, would become CEO of DX Group.
Explaining the rationale for a merger of the two businesses, the companies said their boards “believe that the combination has strong strategic logic for all stakeholders and represents an opportunity to deliver significant value to both companies' shareholders” and “would benefit the customers of DX and Menzies Distribution through the creation of a logistics and parcel carrier of enhanced scale and capability operating through a 24-hour UK-wide logistics network”.
DX Group’s portfolio covers mail, parcel and outsized freight, with about 170 million deliveries a year. Menzies Distribution, which had stable operating profits of £25 million in 2016, operates an overnight network that delivers mostly publications to retail outlets but also makes 100,000 other deliveries, including parcels and pallets.
Based on a preliminary joint assessment, the boards of DX and John Menzies estimate that the combination would generate cost synergies in the range of £8 million to £12 million per annum.
Meanwhile, DX Group also announced half-year results today, showing low revenue growth to £142.7 million and lower pre-tax profits of just £0.6 million compared to £2.4 million last year. Parcels & Freight revenue increased by 2.8% to £80.3m, with strong volume growth in the DX 2-Man delivery business but flat growth in DX Courier and DX 1-Man deliveries. Mail & Packets revenue declined by 3.6% on a like-for-like basis but was up 1% overall at £55.5m.
CEO Petar Cvetkovic commented: “As we stated in our February update, against a challenging trading background, profitability has been impacted by a number of factors. The key elements were margin erosion from the ongoing change in revenue mix, with DX Courier and Freight operations, both higher margin activities, not meeting expected growth targets, and the growth trend in DX Secure coming in below last year's level.”
He added: “At the end of February 2017, we were disappointed to learn that our revised proposed plans for the development of a new central hub in Essington in the West Midlands had been declined at the local authority planning hearing. As previously announced, we are now considering other options, including the development of an alternative site, in consultation with our stakeholders.
“Looking ahead, we are encouraged by recent new business wins. This includes a major contract win with Avon UK, the beauty products company, worth in excess of £10m per annum. Secured by our logistics operation in February, it was agreed after a long competitive tender process and is one of our largest customer wins in recent years. Our trials with a number of other potential new customers have now gone live, including with Bunzl plc, the international distribution and outsourcing group, and with B&S Group, the pharmaceutical supplier. The pipeline of new business opportunities is strong, standing at in excess of £30m.”
