It’s Official – McMillan Shakespeare (MMS) and Eclipx (ECX) Call It Quits

McMillan Shakespeare Ltd (ASX: MMS) and Eclipx Group Ltd (ASX: ECX) have both released statements to the ASX officially calling an end to the proposed merger.

What Was It All About?

The Eclipx-McMillan merger was originally touted as a “compelling combination” of two complementary businesses. The plan was to combine Eclipx’s operating lease business with McMillan’s salary packaging and novated businesses.

The two companies announced this would generate approximately $50 million in EBITDA run-rate synergies per annum to be realised within three years.

They also expected to see future growth potential from an expanded customer base, increased liquidity and access to capital.

Since being announced, the Eclipx share price has been battered, down 70% over the last six months.

Cracks Started To Show

As McMillan looked further into the Eclipx balance sheet, issues started to arise. Late last month, McMillan released a statement saying, “we do not believe it will be possible to complete the proposed scheme.”

The issues highlighted by McMillan were:

  • A decline in Eclipx NPATA of 42.4% compared to the first five months of FY18
  • “Significant” issues with the Right2Drive and Grays divisions
  • Impact of process errors which Eclipx has identified on past financial years
  • Eclipx no longer expects to meet FY19 earnings guidance provided on 29th January 2019
  • Eclipx was unable to provide revised FY19 earnings guidance

McMillan shares rose on this announcement while Eclipx tanked.

It’s Official — They’ve Broken It Off

Both companies have confirmed today that the merger will not be going ahead.

McMillan’s Chief Financial Officer Mark Blackburn said that McMillan and Eclipx, “have today agreed to terminate the Scheme Implementation Agreement dated 8 November 2018 (SIA) with immediate effect and to release one another from any claims relating to the SIA and the proposed scheme.”

Blackburn also announced that Eclipx has agreed to reimburse McMillan for costs incurred in relation to the SIA, amounting to $8 million. Eclipx stated that this will be funded from operating cash flow.

McMillan shares traded 1.3% lower following the announcement, while Eclipx shares end down 2.5%.

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Disclaimer: At the time of writing, Max does not own shares in any of the companies mentioned.

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