Eddie Stobart (ESL) will put private equity group DBAY Advisors’ rescue package to shareholders within weeks after agreeing to an offer that would see DBAY take a 51 per cent majority ownership of the logistics group’s activities and inject £55m into the group.
Eddie Stobart, whose shares were suspended in August after a review of its accounts, also warned that it would make a half-year operating loss of not less than £12m, having previously forecast operating profits in the range of £10m to £11m in September. Its half-year revenue will come in around £435m, lower than a previously expected level of approximately £450m. Eddie Stobart does not anticipate full-year operating profits of more than £2m and cautioned that its losses could deepen further than £12m.
The group expects its year-end net debt to come in at around £200m, “as a consequence of a reduction in EBIT, poor cash collection and the company's historical dividend policy”. Management described its debt as “unsustainable” and said that it would not be able to meet certain financial covenants. It has negotiated an extension of some covenant testing requirements required from its lenders and another creditor until 29 November, and will look to prolong this window in order to facilitate DBAY’s proposed bid.
Shareholders will vote on the rescue offer at a meeting that is expected to be held on or around 2 December. Once agreed, DBAY will inject £55m via a PIK instrument – the interest on the loan will initially sit at 25 per cent, before coming down to 18 per cent upon completion of the deal. DBAY said that without the financing, Eddie Stobart "is expected to face a significant cash shortfall in December", adding that "it is vital that significant action is taken to rescue the company before the busy Christmas trading period".
DBAY, which currently has a stake of just over 10 per cent in Eddie Stobart, is not the sole party to have expressed an interest in the group. In October, Wincanton (WIN) announced that it was carrying out due diligence on the company with a view to potentially making a bid. Wincanton has urged shareholders to "take no immediate action" in response to DBAY's proposal, observing that without knowing when Eddie Stobart's audit will be finished, neither shareholders nor Wincanton "can make an informed decision on the value of any possible transaction".
Wincanton added that a combination of the two businesses would be more compelling than DBAY's offer. The company has been given a new deadline of 27 November to announce an intention to make an offer for Eddie Stobart.
When Eddie Stobart confirmed DBAY’s bid earlier this week, one top-15 shareholder expressed their frustration at the absence of audited half-year accounts. In its latest statement, the group said that its external audit remains underway and that it could not confirm when it would be able to publish its half-year results. It did, however, detail some proposed changes to its accounting for its property-related activities.
Eddie Stobart will alter the way it accounts for property-linked revenue, which will have the effect of lowering forecast half-year operating profit by around £12m. It will accordingly revise its full-year accounts for 2017 and 2018, with around £17m and £33m for 2017 and 2018 needing to be reversed and restated respectively, along with around £13m prior before 2017.
The group said it had identified a number of other necessary accounting adjustments including balance-sheet write-offs and provisions, which will account for not less than a £21m impact on its half-year operating profit.
