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Why the Eclipx share price is crashing lower again today

It has been another disappointing day of trade for the Eclipx Group Ltd (ASX: ECX) share price.

In morning trade the vehicle leasing and management company’s shares have crashed 9.5% lower to 71.5 cents.

Why is the Eclipx share price crashing lower again?

Last month a trading update by Eclipx revealed that trading conditions had weakened further since its late January update, leading to a massive 42.4% drop in profits financial year to date.

It also advised that it had not yet been able to reach an agreement with McMillan Shakespeare Limited (ASX: MMS) on the terms of the scheme booklet relating to its merger proposal.

At that point, it admitted that it may not be possible for the scheme to become effective by the April 30 end date. In light of this, it requested a two-week extension to afford it more time.

However, McMillan Shakespeare rejected the request to extend the end date, leading to concerns that the merger would not go ahead.

And this has proven to be the case. This morning McMillan Shakespeare announced that the two parties have agreed to terminate the Scheme Implementation Agreement (SIA) with immediate effect and to release each other from any claims relating to the SIA and the proposed scheme.

Adding insult to injury for its shareholders, Eclipx has agreed to reimburse McMillan Shakespeare for the costs incurred to date in relation to the SIA and proposed scheme. These amount to $8 million according to the release.

Neither party intend to comment further in relation to the termination of the SIA.

Should you buy the dip?

I would stay well clear of Eclipx despite how cheap it looks on paper. Things appear to be a mess behind the scenes and the collapse of this merger agreement certainly demonstrates that.

I would suggest investors look beyond the industry to companies with brighter grow prospects such as HUB24 Ltd (ASX: HUB) or even Credit Corp Group Limited (ASX: CCP).

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Hub24 Ltd. 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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