CVC pulls out of its move on Brambles

PRIVATE equity giant CVC has walked away from $20bn takeover talks with Brambles in a move that hit the share price and put further pressure on the board to come up with a plan B to deliver shareholder returns.

CVC has blamed market volatility for ending discussions. That is after Brambles revealed on Monday that it was in talks with the buyout firm over a possible deal.

The news helped the share price break out of its long-running underperformance and jump as much as 13 per cent to close at an eight-month high. On Tuesday, they dropped 7.6 per cent to $10.72 in afternoon trade.

“Brambles informs the market that CVC has today advised that it will not be putting forward a proposal nor seeking to conduct detailed due diligence at this time due to the current external market volatility,” Brambles said in an ASX statement lodged before the market opened.

“The engagement has therefore concluded earlier today. As announced yesterday, the board and management remain focused on implementing the ‘shaping our future’ transformation plan, which builds on the strength of Brambles’ sustainable business model to transform the business and unlock value for customers and shareholders.”

Brambles investors, who have seen the shares flatline for years, had pinned their hopes on a protracted and expensive takeover battle as CVC’s approach potentially lured out other bidders to gain control of its global asset base that covers 60 countries.

Brambles, which owns about 350 million pallets that are the backbone of the worldwide supply chain, saw its shares close up 11 per cent on Monday at $11.60. It was also the best performer on the S&P/ ASX 200 index.

Now the pressure will be back on the Brambles board led by chairman John Mullen and the management team of chief executive Graham Chipchase to excite investors with a new plan to derive better value from its businesses. This could include a split or demerger of its operations across its core regional parts – the US, Europe and the Asia-Pacific.

Much of that plan is also based on the company’s ‘shaping our future’ blueprint, which is believed to include investing further in technology and the possibility of a major push into plastics pallets, which could cost as much as $950m.

Brambles said on Tuesday that the management team remained focused on this plan to unlock value in the company.

“They do so against the backdrop of recent performance improvement, the future potential identified in the transformation plan and the good progress made to date in implementing that plan, as set out recently in our trading update,” it said.

“The board will continue to explore other options for the company that maximise shareholder value.”

Analysts and investors have pounced on the signal of a looming break-up of the Brambles business.

“A break-up play could be possible,” Barrenjoey analyst Matt Ryan said. “CHEP (pallets) Europe, Middle East and Africa and CHEP Asia-Pacific deliver consistent mid to highsingle-digit EBIT growth with margins in the low 20s and returns in the mid 20s.

“The contract structures, competitive dynamics and demands from suppliers and retailers differ to what we see in CHEP Americas. There has been a disproportionate impact from the volatility seen in the Americas on the share price of Brambles.”