Eclipx Share Price Plummets 55% Following Broken Agreement

Eclipx’s share price has dropped a massive 55% lower, to $0.83 after returning from their trading halt. The company reported that their financial performance had ‘softened’ since the end of January. Their Grays Industrial and Insolvency arm is continuing to underperform, outweighing continued growth in motor vehicle auctions.

Meanwhile, MCMILLAN SHAKESPEARE LIMITED [ASX: MMS] experienced a small jump in their share price today, despite the announcement that the company will be unable to complete its proposed merger with industry peer Eclipx Group Ltd [ASX:ECX].

McMillian’s share price has jumped forward by 4.31%, to a price of $13.30.

Related: Discover three in-house small-cap stocks Money morning experts are Watching in 2019. 

Why did the merger fail to happen?

Eclipx has announced that they failed to reach an agreement with McMillian on the terms of their proposed scheme.

Initially, they requested that the salary packaging company should agree to an extension of the end date, but McMillian has said they have run out of time, rendering the deal incomplete.

Additionally, it seems McMillian has lost their confidence in Eclipx. They report that the company had experienced a decline in NPATA of 42.4% compared with the first five months of last year. They also cited significant issues in both the Right2Drive and Grays divisions and the fact that the company did not provide this financial year’s earnings guidance.

So, it seems like bad news across the board.

Taken from McMillian’s ASX Update on Wednesday:

In the circumstances we don not think that extending the end date set out in the current scheme documents will resolve these issues, nor do we believe it is in the best interests of McMillian Shakespeare.

And while management may seem optimistic, a share price drop by over 50% is bad news for their reputation, and something that will be difficult to recover from.

Eclipx has announced that they will be expanding its cost reduction program, estimating $20 million over the next 18 months. This, they say, will hope to address central support, issues within their Head Office, while exploring new productivity ideas across the company.

The sales financing company’s share price is sitting at $0.86, down by 54.3%.

Bad news ahead for Eclipx share price?

Despite the massive drop in their share price, they are expecting their FY19 result for their core Fleet and Novated businesses to be in line with their results from the previous year.

They also note that these businesses, along with Commercial, altogether generated $61.2 million NPATA (net profit after tax and amortisation) last year.

Though, it’s apparently not enough to win shareholder’s confidence. It seems like the market is agreeing that McMillian is better off without Eclipx.


Ryan Clarkson-Ledward,

For Money Morning

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Ryan Clarkson-Ledward is an Editor at Money Morning.

Ryan holds degrees in both communication and international business. He helps bring Money Morning readers the latest market updates, both locally and abroad. Ryan tackles all the issues investors need to know about that the mainstream media neglects.

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