(Reuters) - UK mail delivery company DX Group (DXDX.L) agreed to acquire John Menzies' (MNZS.L) distribution arm through a reverse takeover on Monday, securing backing from its largest investors after terms of the deal were revised.
DX has offered 40 million pounds ($51.5 million) in cash and intends to issue new ordinary shares representing 65 percent of its post-transaction share capital, the companies said, winning over stakeholders such as Gatemore Capital Management.
The deal is aimed at bolstering DX after a February profit warning that cited a challenging courier market and margin pressure in its freight business. DX is one of several big operators in the crowded parcels market, where DHL-owner Deutsche Post (DPWGn.DE) has bulked up by buying UK Mail UKM.L and Amazon (AMZN.O) has started its own deliveries.
The boards of Menzies and DX said the deal would generate estimated annual cost benefits of about 10 million pounds and that the enlarged company would reinstate a regular dividend on completion of the transaction, taking into account the leverage, earnings growth and investment requirements of the business.
Gatemore Capital Management, which holds a 21.3 percent stake in DX, had opposed the initial proposal but said it would vote in favor of the revised deal.
"The reduced debt load on the combined company, with a much-improved equity split, better reflects the inherent value in DX Group and will provide the company with a much healthier financial footing going forward," said Gatemore CIO and managing partner Liad Meidar.
The previous terms proposed that DX pay about 60 million pounds cash and issue new shares to Menzies equaling 80 percent of DX's share capital.
"We ... believe that the revised terms of the proposed transaction represent an attractive opportunity for all stakeholders of both companies," DX Chairman Bob Holt and Menzies Chairman Dermot Smurfit said in a statement.
Menzies also said it intends to raise about 30 million pounds through a placing of new shares, largely with institutional investors, adding that it would retain the proceeds.
The deal, which is expected to close this summer, needs approval from DX and John Menzies shareholders.
Three of Menzies' top investors, which include activist Shareholder Value Management (SVM), have previously called for the separation of its aviation and distribution businesses after profit warnings and executive departures.
Reporting by Esha Vaish in Bengaluru and Maiya Keidan in London; Editing by David Goodman