Investors reckon Eclipx Group, fleet management, and online auctions group, is a looming basket case and may not survive judging by the 56% plunge in the shares yesterday afternoon.
The company had had its shares suspended earlier this week while it took stock of its trading performance and the supposed merger with rival fleet management group, McMillan Shakespeare.
Eclipx promised an update by yesterday and when it comes it was so bad that the shares collapsed, falling to 83 cents.
The why was easy to see – the $1.6 billion merger with McMillan Shakespeare is off, the trading update was weak and future guidance was weaker.
And adding to the negatives was Eclipx’s news that its board will consider the interim dividend “at the appropriate time in the light of these circumstances, and will also test carrying values of goodwill at the half year.”
Eclipx said net profit was down 42.4% compared with the first five months of 2017-18, with a decline having worsened in February.
So weak in fact that Eclipx is looking to sell two key assets to raise cash.
Eclipx warned that its financial performance deteriorated markedly in February and it is now looking to sell Grays and Right2Drive.
Both were buys in the past couple of years, both are experiencing tougher trading conditions, so both are now will be put up for sale, if buyers can be found.
The company said customers in its main fleet management vehicle businesses are being much more cautious and extending existing vehicle leases rather than upgrading to a newer, more expensive vehicle (one of the reasons car sales are sliding).
Eclipx operates FleetPartners and FleetPlus, which contribute around two-thirds of Eclipx’s profits.
It declined to be specific on its full-year profit guidance, which will be weaker than last year.
McMillan said in a response yesterday the merger was now off. McMillan shares rose 3.6% to $13.21.
McMillan said the issues raised in the trading update, along with other unspecified matters means “we do not believe it will be possible to complete the proposed scheme”.
It said it rejected a request by Eclipx to extend an end date for the merger scheme by two weeks to May 14.
As part of its action plan to combat the Eclipx said it expected to cut costs by around $20 million over the next 18 months.
The drama comes more than five months after the scrip and cash takeover by McMillan Shakespeare of Eclipx was announced on November 8, with the company offering 0.1414 McMillan shares and 46 cents in cash for each Eclipx share held.
At the time of the November announcement, it valued Eclipx shares at $1.6 billion, or $2.85 each, based on the McMillan share price at the time of $16.90.