Recall Rejects A$2.2 Billion Takeover From Iron Mountain

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Recall Holdings Ltd. rejected a A$2.19 billion ($1.8 billion) offer from data storage and information management company Iron Mountain Inc., saying it “materially undervalues” the Australian-listed target.

Boston-based Iron Mountain made a cash-and-share offer of A$7 per Recall share, according to a regulatory statement from the target, whose board unanimously rejected the bid. Shares of Atlanta-based Recall jumped 15 percent to A$7.38 at the close in Sydney, the highest since the company was spun off from Brambles Ltd. in December 2013.

A successful takeover would give Iron Mountain, now the largest document-storage company, more than 70 percent of the outsourced market in the U.S. and U.K. and 51 percent in Australia, according to UBS Group AG. Iron Mountain, whose revenue has barely budged in the past two years, could generate enough savings from a combination to justify a bid as high as A$2.8 billion, Macquarie Group Ltd. said last month.

“There is significant value to be created in the combination of these businesses,” Recall Chief Executive Officer Douglas Pertz said today by phone from Atlanta. “That benefit is uniquely created by this combination and that needs to be better shared by both parties.”

Major Recall investors are supportive of the rejection and there are no talks under way with Iron Mountain, according to Pertz.

“We’ve laid out some of the terms on which we might consider talking to them again if they approached us,” he said.

Better Offer

Recall shares traded in Sydney at A$6.40 on Dec. 12, giving it a A$2 billion market value before today’s announcement. Iron Mountain stock closed at $36.44 on Dec. 12, giving a market value of $7.6 billion.

Iron Mountain’s indicative, non-binding offer was 18 percent in cash, equal to about A$1.27 a Recall share, with stock making up the remainder, Recall said in the statement.

“The proposal does not reflect the fundamental value of Recall, particularly taking into account the strategic plan which management has executed upon” since the company split from Australian pallet supplier Brambles last year, Recall said.

Potential Savings

Iron Mountain could save about $250 million a year by combining its operations with Recall’s, according to the target. The rejected deal would have seen potential savings for Iron Mountain equivalent to 49 percent of its current market capitalization, Recall said.

The premium offered by Iron Mountain represents less than 5 percent of the total value that would be created for the buyer, Recall said.

While growth in information management isn’t as strong as other industries, there’s still room to expand. Recall estimated this year that the size of the global market is about $20 billion, about two-thirds of which is handled by companies in-house and represents untapped potential.

Brambles scrapped a planned sale of Recall, projected to raise about $2 billion, in favor of a public listing last year. It drew offers that failed to “reflect its value or offer sufficient certainty,” it said at the time. The bids were from private equity firms including Carlyle Group LP and Apollo Global Management LLC, people familiar with the matter said earlier.

Iron Mountain is subject to more favorable tax rules after converting to a real estate investment trust this year. Part of the allure of Recall, which isn’t a REIT, is the potential benefit of folding Recall’s assets into Iron Mountain’s lower-tax structure, James Santo, a special situations trader at Aviate Global LLP in Sydney, said last month.

Bank of America Corp. and UBS are advising Recall, according to the statement. Iron Mountain is working with Evercore Partners Inc. and Goldman Sachs Group Inc., people with knowledge of the matter said last month.