Robert.Jervis_43227 Nov 21

The battle for Eddie Stobart - DBAY ups its stake

The battle for Eddie Stobart - DBAY ups its stake image
More information on the DBAY offer for Eddie Stobart has emerged
As both Wincanton and Andrew Tinkler (possibly backed by M&G/The Stobart Group?) run their slide rules over Eddie Stobart, more detail has emerged about the offer (accepted by the Eddie Stobart Board) from DBAY Advisers, who have teamed up with William Stobart. (DBAY, of course, used to own Eddie Stobart and, in a previous iteration, TDG, who they sold to Norbert Dentressangle)

In short, DBAY Advisers will inject £55m of emergency funding in the form of a PIK (Payment in Kind) note in exchange for 51% of equity in a new vehicle which would own Greenwhitestar, the Eddie Stobart holding company. The remaining 49% would be held by existing stock holders of Greenwhitestar – though it is not clear if that would include the existing 10% of Greenwhitestar already held by DBAY Advisers.

The emergency funding is required as Eddie Stobart nears its borrowing ceiling – thought to be in the region of £200m. This is especially acute - as peak chews up working capital more quickly than at other times of the year.

Wincanton has had its PUSU (Put Up or Shut Up) deadline extended as it seeks clarification about the state of the business from Eddie Stobart’s auditors. However, what is clear is that Eddie Stobart (who have new auditors, PwC) has warned that its losses for the first half of 2019 could be higher than (the previously announced) £12m as “the on-going accounting review might give rise to material further adjustments”. Bearing this in mind – its current guidance for ebit for the full year is for a profit of £2m…but could be less.

However, if the DBAY offer is accepted and goes through, the interest on that loan alone will be between £9m and £13m for a full calendar year – thus wiping out any of that profit.

Moreover, PwC has also suggested the company make the following impairment charges:-
  • A £48m impairment charge for overstated revenue
  • A £22m impairment charge for understated costs
  • A £50m impairment charge for goodwill (which would still leave £140m of goodwill on the balance sheet). For most businesses, goodwill is future profits
At the close of 2018, retained reserves on the balance sheet were £+78m – but these impairments mean that the negative reserves at the end of 2019 might be £-65m or thereabouts.

It also appears that much of the £200m of existing borrowing is fairly asset light – so is weighted heavily towards goodwill and working capital.

In short, the DBAY offer helps paint a rather bleak picture for the operator.

Andrew Tinkler is rumoured to be offering £20m more – or £75m or thereabouts, but the structure of that deal is as yet, unclear. Wincanton is still weighing up its options, but whether incoming CEO James Wroath wants to dive straight into a complicated takeover battle or is simply shaking the tree remains to be seen.

However, with relatively unsecured debt exceeding goodwill, a likely negative balance sheet and profits potentially being eaten up by interest payments, the company is going to be reliant on business wins and operational efficiencies to make headway. That it has just renewed a major contract with Tesco will therefore come as some relief
  • Update 21/11/19: Unconfirmed rumours are circulating that the Andrew Tinkler bid is a more "traditional" equity bid and that DBAY Advisers have increased their offer
  • Update 22/11/19: Wincanton’s chief executive James Wroath has stated: "There is an industrial logic to us being combined with Eddie Stobart Logistics and that is particularly evident in the transport side of things where Stobart has a shared user network. We have some of that but our transport business is much more of a dedicated open book model where we manage assets on behalf of our customers, so putting the two things together at the right price and with the correct due diligence done is absolutely of interest to us. That is why we are looking at it and it would still be interesting to us even if the share price had not been suspended.”
  • Update 24/11/19: "Stobart has been given a major boost in its fight for survival after its banks agreed to give the troubled lorry operator more than a year to repair its finances. Belgian lender KBC, Allied Irish Bank, Bank of Ireland and BNP Paribas, between them owed £200m, have agreed to hand it additional breathing space under a rescue plan hatched by Isle of Man investor DBay Advisors." Sunday Telegraph
  • Update 30/11/19:  Eddie Stobart yesterday confirmed a report by The Daily Telegraph that its banks were prepared to back a rescue spearheaded by offshore fund DBay.