billion-dollar bonus for brambles Billion-dollar bonus for...

billion-dollar bonus for brambles Billion-dollar bonus for Brambles
Geoffrey Newman
December 01, 2005

CLEANAWAY and the other businesses being sold by Brambles could be worth as much as $3.5 billion, with the planned capital return more than $1 billion higher than the company's estimate, according to analysts who welcomed the restructure yesterday.

The renewed focus on the world-leading CHEP pallet business under the restructure, announced on Tuesday, could also be the catalyst for an upward re-rating of the company by the market, they said.

Broker Merrill Lynch said the sale of the worldwide Cleanaway waste business, Brambles Industrial Services and the regional businesses should be worth about $3.5 billion.

Brambles estimates a $2.8 billion capital return to shareholders from the sales and the cost savings from unifying its dual British and Australian listings. Private equity and trade buyers are believed to be lining up to bid for the Brambles assets, with the company saying it had already received several unsolicited offers before Tuesday's restructure announcement.

Although sources close to the company denied Merrill's contention that Brambles was already on the verge of announcing the sale of Cleanaway UK.

Merrill Lynch, which holds a 7 per cent stake in the British company according to a notice filed yesterday, retained its "buy" recommendation on the stock with a 12-month price target of $10.90.

Brambles plc in Britain also rallied overnight and came to within 4 per cent of the Australian shares, to which they have always traded at a discount. But the company expects the shares to trade at parity by the time of the unification, given they will be convertible to shares in the new Brambles.

Citigroup, which has a "buy" rating, said the price-to-earnings ratio for the slimmed-down entity could return to the 22-25 it reached in the 1990s, possibly resulting in a higher share price.

It said CHEP, which will be 87 per cent of Brambles's EBITA, was self-funding, generated strong net cash flow and should deliver stronger growth under the new structure.

"We expect the local market will embrace the new entity and re-rate the stock for its new higher growth and higher returns."

But the bank said there was a lot of detail still to be released on the proposal, such as the savings to be made from unification. Brambles has estimated the effect on earnings per share will be neutral in the year after the restructure - slated to finish in 12 months - is completed.

Citigroup estimates the savings will add $40 million to EBITA in 2007 and $80 million in 2008.

"The market is naturally relieved that the much-maligned dual-listed company will be wound down," it said.

Citigroup was also concerned that Brambles might have harmed the sale price of the assets by revealing its hand up-front, but was still confident about the sales process, noting the company had raised $2.7 billion from 26 asset sales in the last 6 years.

Goldman Sachs JBWere GSJBW said Brambles could return as much as $4.2 billion in capital to shareholders and reduce its share base by 25 per cent through buy backs and its proposed cash offer for shares.