Brambles ends talks with CVC

The shares have tumbled after the buyout firm walked away from a $20bn deal that has likely triggered the start of a takeover tussle.

Brambles owns around 350 million pallets that circle the globe across 60 countries. Picture: Luis Enrique Ascui/Bloomberg

Private equity giant CVC Capital has walked away from talks with Brambles regarding its prospective $20bn takeover bid but has likely fired the starter’s pistol on what could be the eventual snatching of Brambles from the sharemarket and equity investors by a cashed up bidder.

The abrupt end to takeover discussions, which CVC is claimed to have closed the door on due to broader market volatility, will also likely put further pressure on the Brambles board to come up with a “plan B” to deliver shareholder returns after years of disappointment.

On Monday Brambles revealed it had been in discussions with CVC over a potential takeover bid for the global supply chain specialists, valuing it as much as $20bn, that helped the share price break out of its long running underperformance and leap 13 per cent to an eight month high.

However, what takeover speculation gives can be quickly taken away and before the market opened on Tuesday Brambles announced that talks had ended at the behest of CVC which had blamed volatile markets for its retreat.

“Brambles informs the market that CVC has today advised that it will not be putting forward a proposal nor seeking to conduct detailed due diligence at this time due to the current external market volatility,” Brambles said in an ASX statement lodged before the market opened.

“The engagement has therefore concluded earlier today. As announced yesterday, the board and management remain focused on implementing the ‘shaping our future’ transformation plan, which builds on the strength of Brambles‘ sustainable business model to transform the business and unlock value for customers and shareholders.”

Shares in Brambles quickly tumbled on opening, sliding 88c, or 7.6 per cent to $10.72, although it did manage to keep hold of some of the gains it made on Monday. It was the biggest decliner in the benchmark index, compared to Monday when it was the biggest climber for the day.

Investors in Brambles, who had been seeing their stock go nowhere for years and flatline, had been pinning their hopes on a protracted and expensive takeover battle as CVC made a possible grab for Brambles and perhaps lured out other bidders to gain control of its global asset base that stretches across 60 countries.

But Brambles, which owns around 350 million pallets that circle the globe across 60 countries as well as a crate business that transports goods and are the backbone of the worldwide supply chain, could still be in play with CVC coming back to the Brambles board with an offer or CVC inspiring other private equity firms to make a bid.

Investors Mutual portfolio manager Daniel Moore, whose funds own around 1.2 per cent of Brambles, said he was happy to still be a long-term shareholder in the supply chain company but that CVC’s approach, although binned, could start a new bidding war.

“We are invested in the company because we believe it is a good franchise and think it’s significantly undervalued. We’re not surprised there was some interest wouldn’t surprise us if they (CVC) come back or if somebody else pops up as the company is sort of in play.

“The board said all strategic options are being looked at so it wouldn’t surprise us if someone somebody else came along, or CVC came back.”

Now the pressure will be back on to the Brambles board led by chairman John Mullen and the management team of chief executive Graham Chipchase to excite investors with a new plan to derive better value from its businesses that could include a split or demerger of its operations across its core regional parts — the US, Europe and Asia Pacific.

Much of that plan too is based on its “shaping our future” blueprint which is believed to include investing further in technology and the possibility of a major push into plastics pallets, which could cost as much as $950m.

Brambles said on Tuesday that the management team remained focus on this plan to unlock value in the company.

“They do so against the backdrop of recent performance improvement, the future potential identified in the transformation plan and the good progress made to date in implementing that plan, as set out recently in our trading update of 21 April 2022.

“The board will continue to explore other options for the company that maximise shareholder value.”

Analysts and investors have pounced on the signal of a looming break-up of the Brambles business, most likely across its key geographic lines of North America, Europe and the Asia Pacific.

“A break-up play could be possible,” said Barrenjoey analyst Matt Ryan.