Shares in logistics multinational Brambles jumped more than 13% after it gave notice of a takeover approach from offshore private equity company CVC.
Brambles shares jumped 13.3% to a high of $11.82 after Brambles issued a short statement confirming media reports about the CVC approach.
The shares bounced around a bit to finally end the day at $11.60, up 11.2% as investors punted the deal would happen.
Brambles shares had closed at $10.34 on Friday which valued it at a touch under $A15 billion.
Seeing the company had $US2.67 billion in gross debt at the end of December (*that’s around $A3.8 billion at 70 US cents to the Aussie dollar), the mooted price in the media reports around $A20 billion looks cheap. To be truly competitive the offer price would have to be around $12.50 to $13 and $A14 each.
Brambles said in a short statement to the ASX that it “had had preliminary engagement with CVC in regard to an unsolicited proposal to acquire all of the shares in Brambles.
“Brambles notes the engagement is preliminary, incomplete and there has been no formal proposal received from CVC. Brambles also notes that there is no certainty that the engagement will lead to a binding proposal being received from CVC.”
“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.
“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 of 21 April 2022.
“The Board is also considering other strategic options for the Company that maximise shareholder value,” Brambles’ statement added.
Brambles said it will keep shareholders informed as necessary in accordance with its continuous disclosure obligations.
This offer is similar in ways to the mid-April swoop on Ramsay Healthcare by another private equity shark in KKR. it has suggested a bid valuing Ramsay around $20 billion.
It will no doubt happen as Brambles will no doubt happen – not without small increases in the final price and abandonment of the penalty for paying out dividends – other directly or by cashing in franking credits (Brambles would not have many of those).
Monday’s gains included, the Brambles share price is 8% higher than it was at the start of 2022. It has also gained 9% since this time last year.
Will CVC make any difference to Brambles over time – or KKR with Ramsay for that matter? The company doesn’t have the best track record in Australia – it took over Nine Entertainment for a while and proceeded to lose around $1.8 billion.
We know that both sharks will hold the companies for a couple of years and try and flick them back to local investors at a higher price and claim all sorts of improvements in performance. The key metric to watch is the amount of debt on a PE-owned company before the acquisition and then in the IPO documents.
That’s the modus operandi for sharks and there is no way of saying anything otherwise because we have no way of knowing how the companies would have gone by themselves.
But you can bet they don’t need the claimed benefits from private equity – after all Brambles produced a solid upgrade several weeks ago in its June 30 performance and you can bet CVC is trying to grab control before the improvement becomes too apparent for existing shareholders.