Struggling heavy equipment rentral group Emeco (EHL) has bailed out on two deals which would have transformed the company.
In separate announcements yesterday it revealed that it had abandoned plans to takeover Rentco and ended talks with Orionstone over a potential merger.
The company said it could not reach an agreement with rival Orionstone on a merger proposal that represented fair value for shareholders.
Orionstone had proposed an all-scrip, nil- premium transaction, whereby Emeco would issue new shares to Orionstone shareholders in exchange for their shares.
After high level due diligence, agreement on a proposal that represents fair value for Emeco shareholders could not be reached. A financing solution to facilitate the combination of the two businesses has also not been developed, Emeco said yesterday in the statement to the ASX.
Orionstone said it had not been able to make a deal on terms suitable to its shareholders.
“While Orionstone is disappointed that an agreement was not able to be reached, it continues to believe that consolidation is inevitable in the mining services industry,” it said.
“Orionstone is actively pursuing other consolidation opportunities in the sector to cement its objective of supporting its customers with increased scale, lowest cost to service and market coverage."
Emeco said its proposed acquisition of the Rentco truck rental business would not go ahead because conditions precedent had not been met.
"After high level due diligence, agreement on a proposal that represents fair value for Emeco shareholders could not be reached. A financing solution to facilitate the combination of the two businesses has also not been developed,” Emeco said.
EHL 1Y – Embattled Emeco goes it alone
Now it is off, which will please two big shareholders in Emeco, First Samuel and Black Crane Capital, which combined control about 26% of the mining equipment supplier. They have strongly opposed the Rentco deal.
They saw the merger proposal with Queensland-based Orionstone as a better alternative.
Emeco chairman Alec Brennan said in the Orionstone statement to the ASX that Emeco was disappointed at the failed talks but remained positive about the company’s continued recovery in full-year 2016.
And CEO Ken Lewsey said in the same statement that operationally the company had a number of important contract wins in the first half of financial year 2015 with current utilisation at 74% compared with 51% at the same time last year.
“As part of our ongoing business improvement program (Project Fit), measures have been implemented that are expected to realise a $14 million reduction in Emeco’s cost base in full-year 2016 with additional initiatives expected to achieve savings in excess of this figure going forward,” he said.
“Given the capacity, flexibility and tenure of our financing, we are well positioned and will continue to evaluate opportunities to participate in consolidation in the sector.”
Mr Lewsey said Emeco was focused on strengthening its cashflow generation through its core business by maintaining the improved utilisation levels and significantly reducing costs to serve customers.
Emeco shares fell 2.7% to 7.2 cents.
