Eddie Stobart are weeks away making their final delivery, unless a rescue deal can save the ailing freight company. Despite being one of the most recognizable domestic brands, the company which dominated the UK road haulage industry is in crisis.
Languishing with a substantial black hole in company finances, their losses for the first six months of the year were £12m.
The rescue deal recommended by the board comes from Dbay Advisers. The company purchased a majority stake in the trucking business in 2014 when it split from the rest of the business. It became Eddie Stobart Logistics. Later it would be taken private before going public again.
Dbay offered a £55m loan in exchange for a 51% stake in the company. However, initially it will carry an eye-wateringly high 25% rate of interest. Although this will drop to 18%, the rate shows Dbay has concerns about getting all of the money back.
Because Dbay appears to be worried about the risk Eddie Stobart poses, they may seek to get out quickly.
Such a departure would put Eddie Stobart back into trouble. The company currently needs investor loyalty. This will help restore confidence from banks, which are refusing to provide assistance after an accounting scandal struck the company.
Tinkler deal offers Eddie Stobart improved prospects for lasting recovery
Such are the costs of paying the loan that the board appears ill advised to have recommended the offer. Waiting until former Stobart Group chief executive Andrew Tinkler had submitted his proposal would have been preferable. Tinkler’s proposal appears to offer some hope in securing a long-term future for the business.
Tinkler is proposing putting together a £50m package and in addition up to £25m should be raised from existing shareholders. Reportedly the Stobart Group board is supportive of the arrangement.
Though yet to be submitted, the Tinkler deal would not come with hefty debt servicing costs. This suggests that Tinkler has his sights set on long-term prosperity. His former role at the Stobart Group should help to inspire confidence from others within the industry and banks alike.
Avoiding the problem of how a company racked by debt goes about paying a high-interest loan should work in his favor. It should also enable the firm to concentrate much better on creating a sound financial footing.
Given that shares in Eddie Stobart have been suspended from trading since August 2019, the alternative deal still carries significant financial risk for Tinkler. However, if the involvement of shareholders could be secured, so might the long-term future of the road haulage company.