Creditors block Emeco deal

The planned three-way merger between Perth-based Emeco Holdings and east coast companies Orionstone and Andy’s Earthmovers will not proceed as planned after the deal failed to win sufficient backing from creditors.

The scheme of arrangement was supported by 89.6 per cent of Emeco noteholders who were present and voted at the Sydney creditors’ meeting, well above the requisite 50 per cent threshold.

However, it gained backing from only 65.2 per cent of notes by value.

This was below the requisite 75 per cent of total debts and claims owning to the Emeco noteholders.

US-based asset management firm Black Diamond Capital Management was believed to have voted against the scheme, on the basis that creditors should have emerged with a bigger stake in the combined group.

Addressing shareholders in Sydney after the scheme meeting, which commenced at 6pm Sydney time after multiple adjournments, Emeco chairman Peter Richards expressed his disappointment with the outcome.

“We continue to believe in the strong strategic rationale of mergers with Andy’s and Orionstone and although we are disappointed they will not proceed in this form, we continue to explore a range of strategic options with Andy’s and Orionstone,” he said.

“Although this vote is not the desired outcome for the company, we continue to focus on operational excellence to ensure value and performance for our customers and on delivering shareholder value over the longer term.

“We will assess alternative strategic options.”

The proposed scheme was backed by independent expert Ferrier Hodgson, which found it was fair and reasonable for shareholders.

However, ratings agencies Fitch Ratings, Standard and Poor’s and Moody’s were critical, branding the scheme as a ‘distressed exchange’.

The three-way merger scheme included a debt-for-equity swap under which noteholders and creditors would have emerged with 54 per cent ownership of the combined group.

Emeco was also planning a $20 million capital raising, which was to be half underwritten by two current shareholders, private equity groups First Samuel and Black Crane.

The combined group would have had debt of $490 million, but lower gearing.

The merged group would have had about 800 machines in its rental fleet.

As well as being a major strategic setback, rejection of the scheme comes with a direct cost to Emeco and its advisers.

In the scheme booklet, Emeco said the total cost of completing the transaction, including fees to its advisers, would be about $30 million.

This was due to be paid primarily to Sydney-based financial advisers Houlihan Lokey ($9.9 million) and Macquarie Capital ($5.5 million) and law firm Baker & McKenzie ($2.0 million).

Emeco had also agreed to pay the transaction costs of various stakeholders, estimated to be $10.9 million.

The scheme booklet said in the event it was not implemented, the company’s costs would be between $7 million and $12 million.