UK airport services and logistics group John Menzies (MNZS.L) agreed to buy peer BBA Aviation's (BBA.L) ground handling and fuelling operations in a deal worth $202 million, taking a major step in consolidating a fragmented industry.
The deal for ASIG would make Menzies the world's largest interplane fueller, doubling its existing North American operations and adding significant scale at major international gateways, including London's Heathrow airport.
Menzies has been under pressure to revamp its business, as a string of warnings and the departure of top executives attracted criticism from three investors who have advocated separating its aviation services and printed media distribution units.
Activist investor Shareholder Value Management (SVM), which holds over 7 percent of the firm, urged Menzies to pursue more deals, a call the company answered by naming Dermot Smurfit, with a strong deals background, as its chairman this year.
"We are still very vocal about advocating for a split," SVM analyst Gianluca Ferrari told Reuters. "Nevertheless, it has always been our view that the industry needs consolidation. The two things are not mutually exclusive. I think the scale will increase value."
Menzies has been trying to expand the aviation support business, which includes cargo and baggage handling and freight forwarding services and brings in most of its profits, as its once core newspaper and magazine distribution business continues to decline.
Menzies told Reuters on Friday that the proposed ASIG deal would not impact its ongoing review into whether its two units would perform better apart.
Forsyth Black, managing director of Menzies' aviation unit, said the company had the backing of major shareholders for this move. "A lot of the major shareholders... are supportive of this deal and with regards to splitting the group, this doesn't change anything."
"We're doing the work to look at various options," he added during a call with the company's management team.
Menzies' decision to buy ASIG comes as the company tries to improve performance in its aviation unit, which was hit by issues such as operational problems at London's Gatwick airport.
News of the deal, which brings cost synergies of about 10.5 million pounds, pushed Menzies' shares up 5 percent to 623 pence by 0835 GMT. BBA's stock was up 2.5 percent at 242 pence.
Shore Capital analysts said the deal could add 10 percent to Menzies' earnings in the first full year.
For BBA, the sale marks a well-flagged disposal of a smaller unit, allowing it to focus on growing Signature, its largest unit that provides services such as passenger handling, office rentals and hangaring.
The deal is expected to close around 2016-end.
($1 = 0.7561 pounds)
(Reporting by Esha Vaish in Bengaluru and Maiya Keidan in London; Editing by Sunil Nair)