Shareholders of beleaguered U.K. trucking company Eddie Stobart have gone ahead and accepted a £55 million rescue deal that would help the company come out from the brink of administration. This stop-gap measure just ahead of Christmas will help Eddie Stobart save 6,500 jobs, ending several months of uncertainty behind the company’s seesawing fortunes.
The trucking firm was in trouble over £200 million in debt that it owed several banks, with the financiers giving Eddie Stobart a year to clear its obligations while also providing it with £20 million in fresh loans to expedite the process. The company was rocked by a financial scandal in July – its 2018 operating profits were artificially boosted by roughly 4% – which led the company to postpone its first-half 2019 results by a few weeks to deal with the situation.
Then CEO Alex Laffey was asked to step down, followed by a temporary suspension of its shares from trading on the FTSE. Expectedly, Eddie Stobart’s shares continued to slide, with its present value 40% lower than in April this year.
The £55 million funding was secured from private equity firm DBay Advisors and will allow the company to acquire a 51% stake in the trucking firm. However, this investment does come at a hefty price to Eddie Stobart, as DBay will receive 18% in annual interest on the loan from Eddie Stobart, which worker rights union Unite termed as “bandit capitalism.”
The deal shaves off more than half of what Eddie Stobart was worth before it was suspended from trading – it is valued at only £107 million now; in August its value was £269 million. Even more intriguing is DBay’s continued association with the company.
In 2014, Eddie Stobart sold a majority stake in Eddie Stobart Logistics (ESL) that was then acquired jointly by DBay and William Stobart, the son of the company’s eponymous founder, who took over as its head. DBay ended up making millions during the brief period it owned Eddie Stobart, and with its return to the company, it is poised to make a lot more.
That said, the Unite union has cautioned that it will not allow DBay to make high profits at the workers’ expense. “Unite hopes that early discussions will pave the way for an improved industrial relations climate with Stobart’s. However, the new owners need to be fully aware that Unite will not allow profits to be ramped up at the expense of our members’ jobs, pay or conditions,” said Adrian Jones, national officer for road transport at Unite.
Andrew Tinkler, the former CEO of Eddie Stobart, was also putting together a package that rivaled DBay’s proposal. He sought to raise £80 million from shareholders along with a bridge loan of £20 million. However, it was turned down by the company’s board in favor of the deal with DBay.
“We would like to thank shareholders for supporting our transaction, which will bring immediate stability to the business. Eddie Stobart’s loyal staff are the best in the industry and we are pleased to be able to provide certainty over their jobs throughout the Christmas period and beyond,” said DBay in its statement. “We would also like to thank the lenders to the company for their flexibility, which will be invaluable in returning Eddie Stobart to a stable footing.”
The deal gives relief to thousands of shareholders who would have seen their investments vanish overnight if the company had been put into administration. The company still reels under huge losses, with initial estimates putting the number at £12 million this year.