Brink’s 41% Premium Seen in Deal Assent: Real M&A

Shamrock Holdings Inc. President Stanley Gold
On Nov. 2, president of Shamrock Stanley Gold wrote to Brink’s board, asking the company to explore options including a sale after the stock trailed peers. Photographer: Jonathan Alcorn/Bloomberg

Brink’s Co., which uses armored cars to transport gold bullion, would stand to boost the lowest valuation in the security-services industry by heeding a shareholder’s call for a sale.

Shamrock Holdings Inc. urged the board in a letter last week to explore options, including seeking a buyer, to “address meaningfully Brink’s continuing underperformance.” After its stock lagged behind peers in the past 12 months, the Richmond, Virginia-based company traded yesterday at 5 times earnings before interest, taxes, depreciation and amortization, the cheapest among its closest competitors, according to data compiled by Bloomberg.

The company’s low valuation makes it ripe for a takeover, according to Bernzott Capital Advisors, and Cubic Asset Management LLC said its cash generation also could lure private-equity firms. While the fallout from the global financial crisis has hampered profit, Brink’s is also opening more vaults to capitalize on investors buying gold and precious metals. Shamrock said a sale may fetch $40 a share -- 41 percent more than yesterday’s close -- from a security firm looking to expand in the U.S. or bolster its position in Europe and Latin America.

“As a standalone business, it isn’t going anywhere,” said Kevin Bernzott, chairman and chief executive officer of Camarillo, California-based Bernzott Capital, which oversees about $400 million including Brink’s shares. “Management is doing a good job of controlling costs in a difficult environment, but there just doesn’t seem to be a catalyst that is going to unlock the value that we think is there,” he said in a telephone interview.

‘Due Course’

Brink’s said in a filing this week that its board will review Shamrock’s letter “in due course.” Ed Cunningham, a spokesman for the company, declined to comment on Shamrock’s recommendations or whether it would be open to a sale.

Clifford Miller, a spokesman for Burbank, California-based Shamrock, didn’t return messages and e-mails seeking comment about its intentions regarding Brink’s. Shamrock didn’t disclose the size of its Brink’s stake in filings.

Founded in 1859, Brink’s provides armored transportation for transferring cash and valuables to banks, government agencies and retailers worldwide. It also manages automated teller machines, processes checks and guards warehouses, among other services.

The $1.3 billion company serves customers in more than 100 countries and generated the majority of its $3.89 billion in revenue last year outside the U.S., according to its annual earnings filing. Brink’s, which spun off its home-security unit in 2008, has seen its operating margin shrink every year since the split, according to data compiled by Bloomberg.

Shamrock Letter

On Nov. 2, Stanley Gold, president of Shamrock -- the investment vehicle founded by Roy E. Disney, the nephew of Walt Disney -- wrote to Brink’s board, asking the company to explore options including a sale after the stock trailed peers.

“We do not believe this management continuing to operate under the supervision of this board could come close to approaching the shareholder value that can be obtained in a sale,” Gold wrote.

Brink’s stock fell 4.5 percent during the 12 months ended Nov. 2, while shares gained for its four closest competitors -- Loomis AB, G4S Plc, Prosegur Cia de Seguridad SA and Garda World Security Corp., as cited in its annual filing. Since the letter was disclosed two days ago, the stock has climbed almost 8 percent.

Low Valuation

At yesterday’s closing price of $28.29, Brink’s was valued at 5 times trailing 12-month Ebitda, according to data compiled by Bloomberg that includes net debt. That’s lower than its main rivals, and also the cheapest valuation among 13 U.S. commercial-services firms with market capitalizations of more than $500 million, the data show.

Today, Brink’s fell 3.7 percent to $27.25.

Shamrock’s Gold estimated that Brink’s could be worth about $40 a share in a takeover. That price is based on the valuation for the planned $1.1 billion buyout of Montreal-based Garda by its founder and private-equity firm Apax Partners LLP. The offer for Garda, announced in September, was a 30 percent premium to the company’s closing price the day before the offer and valued it at 7.6 times Ebitda, according to data compiled by Bloomberg.

Dan Miller of Rye, New York-based Gabelli & Co., which oversees about $37 billion, said a $40-a-share valuation for Brink’s is “on point.”

Brink’s “is a great global brand,” said Miller, manager of Gabelli’s Focus Five Fund, which holds Brink’s shares. “It’s just a very interesting story.”


Miller said the company could lure interest from strategic buyers including U.K.-based security provider G4S, which could see an acquisition of Brink’s as a way to gain a foothold in Latin American markets.

“I would think that G4S would want to be a much larger player in those markets and Brink’s would be a very easy, logical entry point,” he said in a phone interview. Brink’s is “absolutely an attractive, kind of bite-sized acquisition.”

Representatives from G4S, which has a market value of 3.8 billion pounds ($6.1 billion) didn’t return a message or e-mail sent after normal business hours seeking comment on whether the company would be interested in buying Brink’s.

Shamrock’s prodding for an exploration of strategic options could also spark bids from private-equity firms, which could be attracted to the company’s cash flow generation as well as its low valuation relative to its Ebitda, said Jim Kaplan, president of Cubic Asset Management, which oversees about $400 million, including Brink’s shares.


Brink’s generated $50.8 million in free cash flow last year, according to data compiled by Bloomberg.

The letter from Shamrock “will get people’s attention,” Kaplan, who estimates Brink’s could fetch $35 a share in a takeover, said in a phone interview from Boston. “It’s a reasonably good free-cash-flow generator.”

While Brink’s management, led by CEO Thomas Schievelbein, is working to boost margins and the stock price by closing branches and trimming headcount, a sale “would certainly be the most expedited route” for unlocking shareholder value, according to Bill Weber, an analyst and money manager at Philadelphia-based Cooke & Bieler LP. The firm oversees about $4.6 billion, including Brink’s shares.

Brink’s operating margin of 4 percent in the last 12 months was the lowest among its closest peers, according to data compiled by Bloomberg.

Any buyer of Brink’s would have to take on unfunded obligations, including $306 million in U.S. pension liabilities and $261 million in United Mine Workers of America benefit obligations, according to the company’s August investor presentation.

Manageable Deal

Even with obligations at almost half the company’s market value, a takeover would be manageable for a larger competitor or a private-equity firm, according to Cooke & Bieler’s Weber.

Tom Schindler, a Columbus, Ohio-based money manager at Diamond Hill Capital Management Inc. which oversees about $9.3 billion including Brink’s shares, said he’s open to a sale, given the potential for a takeover premium of as much as 41 percent.

“I certainly would be amenable to exploring strategic options, including hiring an investment bank to do something along the lines of an auction,” Schindler said in a phone interview. “In other words, take the bird in the hand rather than only the potential for management to make the improvements.”

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