Eddie Stobart dodges nightmare before Christmas with rescue deal
One of Britain’s most iconic brands has narrowly avoided collapse as shareholders at Eddie Stobart approved a last-minute rescue package for the truck company.
The haulage firm has been sold to its largest shareholder, the private equity firm Douglas Bay Capital (DBay), together with the lorry driver’s son William Stobart, the former owner.
The £75m bailout announced on Friday stops the company from going under before Christmas and enables it to repay some of its £200m debt.
In a statement to the stock market, Eddie Stobart Logistics said shareholders had voted “overwhelmingly” in favour of the rescue, with 81% of votes approving the deal to hand over the famous green and red lorries along with other assets.
As a result, Britain’s best-known haulage company will avoid breaking its banking agreements and will not face administration.
Eddie Stobart’s board said the deal was the only one on the table that would avoid triggering bank loan foreclosures. DBay will soon start receiving interest at an annual rate of 18% on £55m in loans to the company, and a further £20m of credit will be extended by the banks.
"First of all, it’s great news that Eddie Stobart has been saved from collapse and making sure that all those people still had jobs, especially as it is so near to Christmas time,” said Rick Smith, managing director of Forbes Burton. “It’s hard to say what will be different at this point, however we would expect the backers of the £75m loan who are now the majority shareholders will be carrying out some urgent work to rectify the mistakes that led to the near bankruptcy.”
Previous owner DBay’s 51% stake in Eddie Stobart’s operating subsidiary restored control less than three years after it made £150m from a flotation that valued the trucking company at £573m.
However, a series of management problems, accounting errors and ownership rows triggered a fall in value to less than £270m by August, when shares were suspended.
“A series of in-fighting scuffles had left Stobart in a very poor position, with a complete breakdown in relationships that meant trust was a big issue,” said Mark Halstead, partner at business intelligence firm Red Flag Alert.
While DBay is not making any guarantees, Halstead said the decision to install the old chairman and put in a new round of funding was a solid short-term move.
“This should mean Stobart is in a much better position to move forward and realise the huge opportunity of a growing market where more and more goods are being moved by road,” he said.
Running out of road
Despite having cause for optimism, the haulage firm is not entirely out of trouble, said Ian Smith, finance director and general manager at automated accounts payable and document management software provider Invu.
Eddie Stobart shares were suspended following uncertainty over its interim results for the period ending May 31, 2019, which were first promised at the end of August but have not yet been delivered.
“What happened, in short, was a big surprise that just kept growing,” Smith told AccountingWEB. While year-end results for 2018 were positive, a half-year update earlier in 2019 carried a warning noting historic accounting errors which included a £2m error in the 2018 accounts and an £11.7m impact prior to 2018.
On the postponement of the interim accounts, it was announced that CEO Alex Laffey was standing down. It also emerged the board was reviewing revenue recognition, recoverability of receivables and the level of provisions required, and the firm’s dividend policy, Smith commented.
“Other alarm bells included the resignation of auditor KPMG in November 2018, citing a breakdown in the relationship with management and difficulty obtaining audit evidence that was eventually procured. However, neither the new auditors PwC nor the company appears to mention this in the annual report for the year ended November 2018,” said Smith.
Other issues included profit improvement without cash flow improvement, and an annual report that is awash with adjusted and underlying statistics, and exceptional items, he said.
“The business has expanded rapidly in recent years taking on debt to part-fund acquisitions,” said Smith. “The year-end November 2018 accounts show net debt increasing by £50m to £160m while shareholders’ funds in the parent company increased by £5m. At the same time, intangible assets and goodwill increased by £40m.”
“There is still plenty of danger for the company,” added Rick Smith of Forbes Burton. “The loan comes with a whopping interest rate which may add even more stress to a company which was in trouble in the first place. Unless the core problems are found and addressed then they will likely resurface again. Eddie Stobart may be saved for Christmas but there is a long road ahead and they aren’t clear of long-term problems yet."
Season of goodwill
Unions said this week they are seeking urgent discussions over the future of the 6,500-strong workforce, DBay has briefed to media it has not considered slashing jobs.
Adrian Jones, a national officer for road transport at Unite, said the workers represented by the union were very anxious about their employment.
“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,” he said.