CVC finds Brambles takeover un-pallet-able, exits talks

Just one day after reusable pallet, crate and container company Brambles (ASX: BXB) confirmed it was in takeover talks with a potential suitor, the deal has fallen through amidst uncertainty in capital markets. 

CVC Capital Partners was reportedly mulling a $20 billion acquisition of Brambles, compared to a market capitalisation of around $13.5 billion when the discussions were announced.

But today the Sydney-based group, which reported a three percentage point lift to profit growth guidance last month, revealed an abrupt end to the unsolicited proposal.

"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. The engagement has therefore concluded earlier today," Brambles reported in a release to the ASX.

"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.

"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 logistics and transport giant has managed to lift its profitability recently despite "extraordinary lumber inflation" and pallet scarcity continuing to push up costs, and revenue in the first nine months of FY22 was up 7 per cent for its CHEP brand at more than $4 billion.

A digital transformation utilising data analytics has also helped Brambles achieve better prices and increase pallet recoveries, while the deployment of digital assets has helped teams explore new solutions with customers.

"Despite all these headwinds, the success of pricing and business efficiency initiatives supports the upgrade of our FY22 guidance for sales, earnings and free cash flow after dividends," Brambles CEO Graham Chipchase said in an April update.

Brambles' share price has barely improved since the logistics group sold its worldwide reusable plastic containers (RPC) business IFCO in 2019 for US$2.51 billion private equity firm Triton and Abu Dhabi’s wealth fund.

It does however retain an RPC business in Australia, where plastic pallet trials have been taking place at retail.

"Our plastic pallet trials with Costco are ongoing and we remain on track to make a decision by the end of FY22," Chipchase said in April.

"Any investment in plastic pallets will only be made if returns are not dilutive to group ROCI (return on capital invested) after an initial ramp up period and will be subject to ongoing review as part of the Group’s disciplined capital allocation process."

On 1 May the group also welcomed Kendra Banks, the SEEK (ASX: SEK) Australia and New Zealand managing director, to its board as a non-executive director. Banks has also held several executive roles at Tesco in the UK, worked as a general manager for Coles' (ASX: COL) private label brand, and started her career as a consultant with McKinsey & Company.

"Kendra brings to the Brambles Board detailed knowledge and experience of customer insights, particularly in the FMCG sector, and in digital advancement, marketing and product strategies that will enhance the Board’s overall skills mix," Brambles chairman John Mullen said on 1 May.