Emeco's M&A plans fall through

MINING equipment maker Emeco has terminated its agreement to acquire trailer rental business Rentco and has failed to come to a satisfying merger proposal with rival Orionstone.
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Emeco will not buy Rentco and will not merge with rival Orionstone after coming to an impasse on both deals.

Marion Lopez

Emeco first flagged the $53 million purchase of Rentco in early March as part of its diversification strategy.

The deal was originally due to be completed that same month but was postponed twice to allow for conditions precedent to be met, with July 31 the latest settlement date.

At last, Emeco said both parties agreed that conditions precedent could not be satisfied and would not be waived, resulting in the termination of the acquisition.

Emeco also said its unsolicited merger proposal from rival Orionstone fell through, after shareholders failed to agree on a deal that represented fair value for Emeco.

Emeco received the Orionstone proposal in April, which the latter described as able to have generated sales of $A326 million and pre-synergies earnings before interest, tax, depreciation and amortisation of $93 million on a proforma basis for 2014.

It added that the annualised cost savings would be $34 million.

At the time, Orionstone urged Emeco to terminate its proposed acquisition of Rentco, saying a merger would deliver better value.

Emeco chairman Alec Brennan said the company was disappointed a deal could not be reached.

“However, we must remain disciplined in the use of our shareholders capital, the financing we assume and ensure that any transaction provides Emeco shareholders with fair value,” he said.

“We are encouraged by the positive steps the business has made in the second half of FY15 and look forward to continued recovery in FY16.”

Looking ahead, Emeco CEO and managing director Ken Lewsey said the company would continue to search for consolidation opportunities while keeping focused on costs reductions and improving earnings.

“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 FY16 with additional initiatives expected to achieve savings in excess of this figure going forward,” he said – some positive news, given Emeco’s cost reduction strategy has an annual target of $10 million.

“Our key goal remains to improve the quality and resilience of earnings in the Emeco rental model buy increasing the profitability of the core rental business, maintaining the capital base and deleveraging.

“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.”

Macquarie Capital is acting as financial adviser to Emeco.

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