2 Dec 2019 07:00
DBAY Advisors Limited
Update on proposal
·; DBAY Advisors ("DBAY") stands firm behind Eddie Stobart Logistics plc ("Eddie Stobart" or the "Company") - its management, staff, customers, and suppliers
·; DBAY (with its concert parties, including William Stobart) has acquired more shares in the Company, taking its holding in the business to 29.9%, which demonstrates DBAY's strong belief in the business and its prospects
·; DBAY has worked non-stop over the past months to develop a robust plan for the business, which would ensure its stability going forward and restore value in the equity to the benefit of all shareholders. This plan is based upon DBAY's extensive experience gained during its past ownership when the Company thrived as a highly profitable and cash-generative logistics business
·; This plan has the support of the Lenders and the board of the Company
·; DBAY has listened to shareholders and amended its initial proposal so that fellow shareholders will have the opportunity to participate in the PIK Notes (as defined below) on an equivalent economic basis as the DBAY investors. The Company will remain listed in order that existing shareholders can participate in the future equity growth
·; Investment advisers, Pensions & Investment Research Consultants ("PIRC"), Glass Lewis and International Shareholder Services have all recommended that Company shareholders support DBAY's plan
·; Other parties who have been considering alternative solutions have been unable/unwilling to submit any concrete workable alternative so far. Should the DBAY proposal be voted down, the Eddie Stobart board will be faced with an imminent liquidity shortfall, imminent expiry of the existing waivers from the Lenders relating to the breaches of the Company's credit facility and no support from the Lenders to explore alternative options
Further to the announcement made on 15 November 2019, DBAY is pleased to provide an update on the progress it has made with the Proposed Transaction to rescue the equity value in Eddie Stobart.
DBAY said: "The DBAY team has spent months working with the Company and its lenders to put forward a proposal that provides a realistic opportunity to save the equity value in Eddie Stobart, while safeguarding jobs.
"DBAY has a long and successful history with the business and it is with regret that we will be returning under these circumstances. Our belief in Eddie Stobart is reflected in the considerable effort we have put in to deliver a practical proposal and our decision to invest further, despite the problems it has faced since we stepped back from the board.
"We think that Eddie Stobart staff are the best in the industry; we'll match their enthusiasm for this business and together overcome the Company's recent problems.
"We want customers to rest assured that our immediate priority is to ensure that they receive the reliable, high-quality service expected of this great brand. Key to all this will be the excellent partnerships Eddie Stobart has developed with its suppliers, who we know will play an important role in restoring the business.
"With the new funding in place to stabilise the business, we believe the Company can thrive once again. This belief is underpinned by the return of William Stobart who will support the operational management teams. This stability will be important to provide excellent customer service through the Christmas period and will allow the Company to meet its commitments to customers and suppliers throughout this busy period."
Proposed Transaction remains the only firm and recommended proposal
DBAY is pleased that the board of Eddie Stobart continues to support its proposal, which DBAY firmly believes is in the best interest of all shareholders.
DBAY also notes the statement in the announcement made on 29 November 2019 by Eddie Stobart that the Lenders have informed the board of the Company that if any alternative proposal requires additional funding in order to be implemented, the Lenders would not be willing to provide this. In addition, in the event that the vote relating to the Proposed Transaction is not successful at the General Meeting, the board will be faced with an imminent liquidity shortfall, imminent expiry of the waivers from the Lenders relating to the breaches of its credit facility, and no support from the Lenders to explore alternative options. Accordingly, if shareholder approval for the Proposed Transaction is not received, and the existing waivers in place over certain facilities, including the credit facility, were to expire on 13 December 2019, the respective finance parties will be able (amongst other things) to enforce their rights in respect of the share security over 100% of the issued share capital of Greenwhitestar, which is currently a wholly-owned subsidiary of the Company and in turn holds the Company's interests in the trading entities of Eddie Stobart.
Summary of Proposed Transaction
·; DBAY will inject £55m into the Eddie Stobart group via payment-in-kind loan notes (the "PIK Notes") and will indirectly acquire a 51% stake in Greenwhitestar. Furthermore, DBAY has also negotiated on behalf of the Company a new revolving credit facility of £20m, which together will provide £75m liquidity to the Eddie Stobart group on day one
·; The initial capital injection is in the form of PIK Notes to provide immediate funding to the Eddie Stobart group and limit dilution for existing Eddie Stobart shareholders. The PIK Notes will be refinanced after completion and DBAY will offer the Eddie Stobart investors the right to participate in an equivalent economic interest
·; The DBAY PIK Notes accrue interest of 18% p.a., which is non-cash paying and is accrued until such a time as to when the PIK Notes are repaid. This provides the Company with the capital it requires whilst also not burdening it with costly periodic cash interest payments
·; The Company will remain listed and current Eddie Stobart shareholders will be able to participate in any future upside through both equity investments and participation in DBAY's PIK Notes
·; By taking control of the trading company, Greenwhitestar, DBAY can ensure for shareholders the return of William Stobart, as Executive Chairman of the operating business, to work alongside the management team led by Sébastien Desreumaux. Members of the DBAY team will also take an active role to assist in stabilising the business and ultimately restoring value for all shareholders
·; Under DBAY's past ownership, Eddie Stobart thrived as a highly profitable and cash-generative logistics business. Based on the due diligence undertaken, the DBAY team is confident it can bring the business back to its original strength
·; The PIK Notes structure allows DBAY to execute swiftly the required injection the business day after the General Meeting and before completion (which is subject to FCA approval). DBAY explored alternative structures, including equity structures, which proved impractical as all required significant time to implement, resulting in an unacceptable risk of the Company going into administration or insolvency
·; The DBAY proposal is recommended by the board of the Company
Lenders are supportive and have agreed not to enforce rights under the Proposed Transaction
In addition to the immediate £55m of liquidity that will be injected into the Eddie Stobart group under the Proposed Transaction, DBAY has negotiated on behalf of the Company and found support from the Lenders for a further £20m revolving credit facility, with documentation now in near-final form. DBAY believes that, combined with various extensions and waivers set out in that near-final form documentation, the additional liquidity will provide the Company with sufficient funding and time to stabilise the business and avoid the possibility of an immediate administration or insolvency.
Acquisition of shares and commitment to listing
DBAY can also confirm that it has purchased an additional 62,150,000 shares in the Company, and taken in aggregate with its existing holdings, DBAY and its concert parties now hold 29.9% of the equity in the Company. This purchase of shares indicates DBAY's belief in the future prospects of the Company and demonstrates its intention to maintain the Company's listing.
Updated terms - call option
As announced on 20 November 2019 and included within the Company's circular, DBAY's proposal intends to provide Eddie Stobart shareholders with the opportunity to participate in the economic interest of up to 49% of the PIK Notes within six months following Completion.
In order to implement this, DBAY has made a proposal to the board of the Company to provide the Company with a call option over up to 49% of the economic value of the PIK Notes (the "PIK Option"), such that (if the option were to be fully exercised) the shareholders of the Company would be given an economic interest in the business equivalent to that of DBAY's investors. If the PIK Option is exercised in full, the Company will benefit from 49% of any upside in the operations of the business, whether through its equity holding or the PIK Notes.
The PIK Option is subject to certain conditions, including that the Company is converted to an AIM investing company within six months of completion of the Proposed Transaction, with DBAY as investment manager, to ensure that the Company is able to retain its listing and provide liquidity for shareholders. DBAY intends to enter into an investment management agreement with the Company (subject to approval of the shareholders) on customary terms.
Next steps
DBAY has agreed the terms of the new £20 million revolving credit facility, and various other amendments to the Company's credit facility, with the Lenders. The relevant long-form documentation is in near-final form and is expected to be signed on or before the General Meeting. Concurrently, DBAY has submitted its application for FCA change of control approval and is working with the FCA to satisfy this condition as soon as possible.
Unless otherwise stated, all terms and definitions remain the same as used in the shareholder circular published by the Company on 20 November 2019.
Enquiries
Investec Bank plc (Financial Adviser to DBAY) +44 (0)20 7597 4000
Gary Clarence, Edward Thomas
Temple Bar Advisory (PR to DBAY) +44 (0)20 7975 1415
Alex Child-Villiers, William Barker