Brambles to Sell New Shares After Pulling Recall Sale

Brambles Cancels Recall Sale, to Sell A$448 Million of New Stock
A worker uses a forklift to stack Brambles Ltd.'s CHEP pallets at CHEP's Dandenong South Service Centre outside Melbourne. Photographer: Luis Enrique Ascui/Bloomberg

Brambles Ltd., the world’s largest supplier of warehouse pallets, announced an A$448 million ($432 million) rights offering after scrapping the sale of a document-storage unit that was expected to raise $2 billion.

Bids for Recall didn’t “reflect its value or offer sufficient certainty,” Sydney-based Brambles said in a statement today. The company, which also reiterated its profit forecast, will sell the new shares at an 11 percent discount.

Asia-Pacific acquisitions have slumped 32 percent this year, as concerns about the European financial crisis, the U.S. economy and slower growth in China damp confidence and cause stocks to tumble. The MSCI Asia Pacific Index today fell for a fourth straight day, reaching the lowest since October.

“The market is still in ‘wait-and-see’ mode,” said Graeme Browning, Sydney-based head of Ernst & Young LLP’s Oceania Transaction Advisory Services. “Buyers are looking for confidence that the U.S. is on a better growth path.”

Brambles spokesman James Hall, speaking by phone from Sydney, had no immediate comment beyond the official statement.

The company will offer 74 million new shares, equivalent to about 5 percent of its issued capital. Investors will be able to buy one share at A$6.05 for every 20 they own. Brambles is seeking funds to cut debt from last year’s purchase of Ifco Systems NV, which operates a pool of reusable plastic containers.

The stock, which is halted until June 7, closed at A$6.79 on June 1. It has fallen 5.7 percent over the past year, compared to a 13 percent decline in the benchmark S&P/ASX 200 index.

Sale Underwriters

The share offering is fully underwritten by UBS AG and Bank of America Corp.’s Merrill Lynch division.

That support is “a good indication of how desperate investment banks are” to earn fees from selling shares in the absence of merger activity, said Peter Esho, chief markets strategist at City Index Ltd. in Sydney. The offering “isn’t a bad outcome” for Brambles, he said.

The company reiterated that it expects underlying full-year earnings before one-time items to be $1.05 billion to $1.08 billion, even as it contends with “challenging trading conditions” that aren’t expected to improve immediately. The company’s Chep unit operates a pool of about 300 million pallets for customers including Procter & Gamble Co., Nestle SA and General Motors Co.

Earnings Expectations

Brambles will probably spend A$987 million on capital projects this year and A$1.1 billion in each of the next two years, according to the average of six analyst estimates collected by Bloomberg. Earnings before interest, tax, depreciation and amortization will rise from A$1.6 billion this year to A$2.0 billion in 2014, according to the average of 12 estimates.

Recall drew bids from private-equity firms including Carlyle Group LP and Apollo Global Management LLC, two people with knowledge of the matter said in January. The sale was expected to raise about $2 billion, the people said.

Brambles, which announced plans to sell Recall last August, extended the deadline for the sale at least once. It was advised by UBS and Merrill Lynch.

“It is in the best interests of Brambles’ shareholders to retain Recall, which is a profitable and growing business,” Chairman Graham Kraehe said in the statement.

The share sale and retention of Recall will raise Brambles’ book value by 19 percent to A$2.8 billion, according to the company presentation. The raising will help maintain an investment-grade credit rating, it said.

Recall Costs

The company will incur costs of $25 million related to the sale process in the year ending June 30, it said. That includes $6 million already recorded in first-half results. The company also said Chief Financial Officer Greg Hayes will retire Oct. 1.

New Hope Corp., an Australian coal miner valued at A$3.4 billion, also canceled plans to sell itself after failing to draw bids that met its expectations. Clothing company Pacific Brands Ltd. said May 15 that discussions with KKR & Co. were unlikely to result in a takeover.

Asia-Pacific companies have made $158 billion of acquisitions this year, compared with $270 billion a year earlier, according to data compiled by Bloomberg.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE