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Eclipx Group Ltd (ASX:ECX) share price rockets 20% higher on merger news

The biggest mover on the ASX 200 on Thursday has been the Eclipx Group Ltd (ASX: ECX) share price.

At the time of writing the fleet management provider’s shares are up 19.5% to $2.75.

Why are Eclipx Group’s shares racing higher?

This afternoon McMillan Shakespeare Limited (ASX: MMS) and Eclipx Group announced that the two companies intend to merge via a scheme implementation agreement.

Both management teams believe that doing so will establish a leading salary packaging and fleet management company.

According to the release, the proposed transaction, which is subject to numerous conditions, will be implemented by McMillan Shakespeare acquiring all shares in Eclipx under an Eclipx Scheme of Arrangement.

Eclipx shareholders will receive 0.1414 McMillan Shakespeare shares plus 46 cents cash for each Eclipx share held. This implies a total value of $2.851 per Eclipx share.

Why are the two companies looking at merging?

As well as establishing a leading salary packaging and fleet management company, the two parties believe the industrial logic of combining these complementary businesses is compelling.

It expects the merger to deliver EBITDA run-rate synergies of $50 million per annum following integration, before implementation and transaction costs. The merger is expected to be earnings per share accretive pre synergies

In addition to this, it expects the combined entity to deliver an improved offering for all customers and material benefits for employees.

What now?

Judging by their respective share price performances today, it appears that the market believes that Eclipx Group shareholders got the better deal.

While its shares are one of the best performers on the ASX 200, McMillan Shakespeare’s shares are amongst the worst performers. The McMillan Shakespeare share price is down 4% to $16.22 at the time of writing.

Overall, if the merger is approved then I think it would create a real force in the industry. This could make the combined entity an attractive option for investors and a great alternative to rivals Smartgroup Corporation Ltd (ASX: SIQ) and SG Fleet Group Ltd (ASX: SGF).

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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