Brambles buyout bid looks to be off the cards for now

Until now, Brambles’ share price has always been seen as underperforming and for that reason it has been labelled a takeover target. Picture: AAP

Shareholder reaction from Brambles earnings this week has killed the prospect of any buyout in the near future, say observers.

Shares in the company that manages the world’s largest pool of reusable pallets, cranes and containers rallied 5 per cent as the group delivered its result on Wednesday, closing at $12.40.

On Thursday, the shares ended 3.55 per cent higher with its market value at $17.2bn.

Until now, Brambles’ share price has always been seen as underperforming and for that reason it has been labelled a takeover target.

An acquisition may not make sense for every buyer – some deal makers that ran the numbers on the company said they could get them to work for a buyout. But there was certainly expected to be interest for Brambles’ North America unit, in a purchase that could have been worth at least $7bn.

With underperformance in its share price, some believed that Brambles was under pressure to launch a strategic review of the North America unit. This was around March, when the market value of Brambles was worth about $15bn.

For the 12 months to March, many believed a deal to buy the whole business or at least the North American unit would have appeal for a private equity firm like Kohlberg Kravis Roberts, although its attention, this year at least, has largely been directed towards Ramsay Health Care.

Still, at $15bn, some believed that a Brambles takeover was not out of the question, with private equity firms the masters at stripping out costs from industrial companies and maximising profits.

There was, of course, the offer from private equity firm CVC that was announced in recent months but later withdrawn. But there are serious doubts about how real that offer was, with some suggesting CVC’s head office had not even signed off on a potential proposal mooted from its Asia Pacific arm. Now, with the recent Brambles rally, sources believe a deal now does not make sense.

Brambles also opted to shelve plans for about $US700m worth of spending on plastic pallets to retain Costco as a customer.

The thinking was always that a buyer may pounce on the North America unit after this had occurred. The rising share price came as Brambles surprised on the upside this week, and analysts raised their forecasts for the company’s 2023 earnings.

Brambles highlights were improving earnings, strong pricing benefits across its regions, and earnings guidance higher than expectations.

This is despite new contract wins remaining challenged, higher pallet returns and higher timber costs.

Another reason why some do not think Brambles would be subject to a buyout is that countries where it operates are heading towards a slowing economy. A buyout of companies like Brambles is usually a bet on an improving economy.