* Co to sell stake in transport and distribution business
for 239.7 mln stg
* Deal for 195.6 mln stg in cash and 44.1 mln stg in stock
* Deal to cut earnings in the first 2 years
* To focus on higher margins biomass and energy unit
* Shares fall as much as 7.4 pct
(Adds company comments, details, background; updates share
By Esha Vaish
March 6 British freight company Stobart Group
Ltd said it would sell 51 percent of its core transport
and distribution business for 239.7 million pounds ($401
million) to a group led by Chief Operating Officer William
The sale will reduce the company's earnings in the first two
years, Chief Executive Andrew Tinkler told Reuters.
Stobart, known for its distinctive green and red trucks, got
90 percent of its revenue from its transport and distribution
business in the year ended February 2013.
Shares in Stobart, whose clients include Tesco Corp
, easyJet Plc and Aer Lingus Regional,
fell as much as 7.4 percent on Thursday.
The company said it would retain the 'Eddie Stobart' brand
and parts of its core business that were key to meet the storage
and transporting needs of its energy business.
Stobart said the deal comprised 195.6 million pounds in cash
and 44.1 million pounds in shares - or 49 percent of the
The new company, backed by asset management firm DBAY
Advisors Ltd, will also assume 41.1 million pounds in debt.
William, son of Eddie Stobart who founded the parent
company, will be the CEO of the new company and will have a 6
percent stake in it.
Stobart said it would use the proceeds from the deal to pay
back a 100 million loan taken from M&G Investment Management
Ltd. M&G is Stobart's second-largest shareholder with a 13.5
percent stake, according to Reuters data.
The company said the deal would help it expand its footprint
in the biomass, rail and aviation industries.
"(The deal) allows us to grow, without having much debt on
the balance sheet," said Tinkler, brother-in-law of William
Stobart Group had net debt of 203 million pounds at Aug. 31.
The company said it will invest 55 million pounds in its
high-margin biomass business and buy back shares for up to 35
million pounds in the next 12 months.
Investment in biomass plants would help cut the company's
dependence on Germany for raw material.
"I believe the margins received in them (biomass and energy)
is far greater than what you could get in a transport business,"
The biomass business contributed about 3 percent to the
company's revenue in the year ended February 2013. However,
revenue from the business nearly doubled from a year earlier.
Companies that manage to provide low-carbon energy
generation will benefit when the European Union's new Industrial
Emissions Directive (IED) come into effect by 2016.
The UK government plans to get at least 15 percent of its
energy from renewable sources by 2020, and has been encouraing
utility companies to switch to cleaner fuel.
"There's a small window of opportunity with the legislation,
and over the next sort of three years to invest in these plants
to get them up and running," Richard Butcher who heads Stobart's
estate division told Reuters.
Stobart said it would sell other mature assets in the next
two-three years that will allow it to keep paying dividends.
British hauliers have been in the doldrums in the past year
as retailers - a major source of revenue - have struggled to
keep profits up amid low consumer confidence.
Stobart, which has largely been a family run business since
it was started in the 1960s, had a rocky start to 2013 when its
stock lost a quarter of its value after the company issued a
profit warning in January.
The company was removed from the FTSE-250 Midcap Index last
March, less than two months after investor-backed Chairman Avril
Palmer-Baunack was ousted in a boardroom shake-up just 71 days
into the job.
Tinkler was tried against allegations that he lied to secure
a gagging order on a whistleblower to protect his aviation
There was no requirement to hire a new COO at the moment,
said the CEO.
He holds about 9 percent in Stobart, while William had a 3.4
percent stake, according to Reuters data.
Stobart shares were down 5.5 percent at 141.25 pence at 1520
GMT on the London Stock Exchange on Thursday.
($1 = 0.60 British pounds)
(Reporting by Esha Vaish in Bangalore; Editing by Kirti Pandey
and Joyjeet Das)