Brambles and Loscam will combine their pallets business in China

The owner of CHEP pallets and its major rival will combine their pallets operations to form a new powerhouse in the region.

Brambles will merge its CHEP pallets business in China with rival Loscam to create a new pallets powerhouse in the region. (Photo by Luis Enrique Ascui/Bloomberg via Getty Images)

Brambles and Loscam are might compete in Australia – and in several other markets – but they will partner in China after agreeing to a deal which combines the pallet and pooling operations of their respective businesses CHEP China and Loscam Greater China.

Under the deal, disclosed on Monday, CHEP China will be sold to Loscam Greater China for an enterprise value of US$132.2m ($198.3m), with the latter issuing shares to Brambles as payment.

The combined pallets business will be 20 per cent owned by Brambles and 80 per cent by Loscam Greater China, which is part of Loscam Group, whose beneficial owners are Sinotrans Limited and two private equity firms, Trustar Capital, formerly known as CITIC Capital Partners, and FountainVest Partners.

Completion of the proposed transaction, which is subject to regulatory approvals, is expected to occur by the end of the first quarter of calendar year 2023.

The combination of Loscam Greater China and CHEP China will result in the largest pallet and automotive container pooler with a combined pool of over 20 million pallets and 1 million automotive containers and other crates, together with a nationwide network of service centres.

In a note on Monday, brokers at RBC Capital Markets said the deal represented “a very clean exit strategy from what had become an uncompetitive position in China”. “Overall this is a positive outcome for the group, allowing them to maintain some exposure to the growth of the Chinese market, but through a much larger platform which is now market dominant,” they told clients.

Brambles will have board representation, with critical decisions requiring the approval of both shareholders. The stake will be recognised as an equity investment on the balance sheet.

Brambles shares rose 4c, or 0.3 per cent, to close at $11.95. They have risen 11 per cent this year.

Brambles chief executive, Graham Chipchase said the agreement represents an important strategic milestone for Brambles.

“In partnering with Loscam … we will expand our footprint, invest together to grow our network of operations and reduce duplication, building a truly national pallet pool,” she said.

“With approximately 1 per cent of the 1.6 billion pallets in China pooled, there is an exceptional opportunity for growth which our jointly owned business can deliver to new and existing customers in this large and fast growing market.”

Loscam chief executive Sirin Limpaitoon said through its combination with CHEP in China, his company intended to create sustainable scale and new opportunities in China and Hong Kong.

“There is no impact on the respective independent operations of other businesses across the Loscam group of companies. These all remain singularly focused on delivering ongoing competitive operations in their respective markets across Asia and the Asia Pacific,” Mr. Sirin Limpaitoon said.