DX and John Menzies end deal talks after failing to agree terms

(Rewrites first paragraph, adds detail, background, comment)

By Maiya Keidan

LONDON, Aug 14 (Reuters) - A proposed merger deal between British mail delivery company DX Group and logistics group John Menzies (LSE: MNZS.L - news) collapsed on Monday after months of fraught negotiations, with the two sides unable to agree terms.

Under the deal, DX would have bought the distribution arm of Menzies through a reverse acquisition, with DX paying 40 million pounds ($52 million) in cash and new ordinary shares representing 65 percent of its post-transaction share capital.

The deal had already been revised in June following opposition to the original terms from DX's biggest shareholder, but Menzies said on Monday it had undertaken further due diligence following a trading update from DX on July 14, which convinced it the terms needed to be revised again.

DX for its part said it had been unable to agree terms with Menzies and had the backing of its major shareholder to walk away.

It also said its chairman Bob Holt would retire to be replaced by Ron Series, previously chief restructuring adviser at Lonmin (LSE: LMI.L - news) .

The deal's collapse is a blow to both companies which continued to endorse its business logic in a fiercely competitive market. DX is one of several big operators in the parcels market, where DHL-owner Deutsche Post (IOB: 0H3Q.IL - news) has bulked up by buying UK Mail (LSE: UKM.L - news) and Amazon has started its own deliveries.

Activist hedge fund Shareholder Value Managements (SVM), which holds 10.2 percent in Menzies according to Thomson Reuters (Dusseldorf: TOC.DU - news) data, had supported a merger under the right terms.

"The willingness to withdraw from a deal that evidently was not in the best interest of shareholders demonstrates the strength of Menzies’ management," said Gianluca Ferrari, director at SVM.

DX said its major shareholder Gatemore Capital Management, which owns 21.3 percent of the stock, supported its plans to operate independently and it was exploring financing options with its banks.

"As we were unable to agree suitable terms with John Menzies, we believe a stand-alone strategy is the right course for our shareholders," Holt said in a statement.

The acquisition had immediately attracted opposition from Gatemore when it was first set out in March, with chief investment officer Liad Meidar saying it "seems like an egregious case of the board ... force-feeding a deal which is not in the best interest of shareholders."

DX shares have been suspended on London's junior AIM market since March, having slumped to just 9.5 pence from a 2014 high of 152p. The company in February warned its annual profits would be well below market forecasts and it would not pay dividends for the foreseeable future. (Reporting by Maiya Keidan in London; Additional reporting by Sanjeeban Sarkar in Bengaluru; Editing by Amrutha Gayathri and David Holmes)