Eclipx Group Limited (ASX: ECX) and McMillan Shakespeare Limited (ASX: MMS) have mutually agreed to terminate the Scheme Implementation Agreement dated 8 November 2018. Further, ECX will pay $8 million to MMS for costs that MMS has incurred to date in connection with the Scheme Implementation Agreement and the proposed scheme.
Earlier in November 2018, both the companies had proposed to merge in a Scheme Implementation Agreement, to establish a leading salary packaging and fleet management company. However recently when Eclipx provided its trading performance and informed about the softening financial performance of the company and several other issues that the company was facing, McMillan decided not to go for the merger and informed Eclipx that it will not be able to complete the proposed scheme.
Upon completion of the Merger, existing MMS shareholders would have own around 64 percent of the Combined Group and rest 36% would have been with Eclipx shareholders. After three years of merger, the Combined Group would have realised an estimated $50 Mn in EBITDA run-rate synergies per annum.
However, now both the companies have agreed to terminate the Scheme Implementation Agreement with immediate effect. And both the parties are going to release one another from any claims relating to the SIA and the proposed scheme.
The payment of $8 million that Eclipx will make to McMillan is equivalent to 1.8 cents per ECX share (post-tax) and will be funded from operating cashflow.
The issues announced by Eclipx include a decline in Eclipx NPATA of 42.4 percent as compared to the first 5 months of FY 2018, various significant issues in the Right2Drive and Grays divisions and the impact of process errors which Eclipx has identified on past financial years. Eclipx also announced that it no longer expects to meet FY2019 earnings guidance provided to the market on 29 January 2019 and it won’t be able to provide the revised FY2019 earnings guidance.
In the recently released market update, Eclipx had confirmed that its Grays and Right2Drive businesses are for sale. And it announced that it has received interest from a number of parties regarding these businesses. The company also announced that it is targeting cost reductions of around $20m over the next 18 months.
ECX is planning to release its first-half results of FY19 on 24 May 2019.
Following the release of today’s announcement regarding the termination of the Scheme Implementation Agreement, ECX’s shares went down by 5.063% and MMS’s shares were down by 0.95% in the intraday trade.
In the past six months, the share price of Eclipx Group has declined by 70.19% as on 2 April 2019. At the time of writing, i.e., on 3rd April 2019 AEST 12:47 PM, the stock of ECX was trading at a price of $0.750 with the market capitalization of $252.51 million while MMS was trading at a price of A$11.995 with the market capitalisation of ~A$1.01 Bn.
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