Timing is everything.
Brambles (BXB) shares jumped yesterday as the company revealed it was trying again to float its Recall information management business. The announcement came a day after that near 2% fall in the market, as local investors tried to make up for that silly sell-off with a day of strong buying.
As a result, Brambles shares added 3% or 27c at $9.35 after being up nearly double that at $9.43 in early trading. Had the announcement came on Monday it’s likely the shares would have sunk, such was the level of gloom around in the market about China (which vanished in European and US trading).
BXB YTD – Investors applaud Brambles in big demerger
The planned spin-off comes a year after Brambles first tried to unload Recall at a price of around $2 billion. This time the company will be sold to existing investors in Brambles via a share issue based on the size of each Brambles’ holding.
Recall generated revenue of $US845 million in the 2012 financial year and underlying profit of $US174 million, according to a statement from Brambles yesterday.
It said Recall is forecast to make an underlying profit of $US138 million to $US142 million this year.
Recall Holdings will list on the Australian Securities Exchange (ASX). Brambles said eligible shareholders will receive new shares in Recall Holdings proportionate to their existing Brambles shareholding, while retaining their existing Brambles shares. "Brambles will not retain any shareholding in Recall following the demerger," the company told the ASX.
"The demerger will enable Brambles to focus on the ongoing opportunities for growth and shareholder returns from the company’s global Pooling Solutions operations under the CHEP and IFCO brands. Separately, the newly independent Recall Holdings will offer investors exposure to a global, industry-leading information management business with stable revenues and strong cash flow from which to fund dividends and investments in growth."
Brambles expects to distribute a scheme book to shareholders on October 20 of this year containing a recommendation from the board in respect of the demerger; information about the mechanics of the demerger; information about the operating and financial profiles of both Recall Holdings and the post-demerger Brambles; an independent expert’s report; and additional information for shareholders.
Brambles said it currently intends to convene a meeting for shareholders to vote on the demerger proposal in December. "Subject to the outcome of this shareholder vote and the satisfaction of other conditions (including receiving the relevant court and regulatory approvals) the final separation of Recall from Brambles and the listing of Recall Holdings will occur shortly thereafter."
"Recall will have around US$450 million of net debt. "Recall generates strong, recurring operating cash flow capable of servicing this debt comfortably as well as funding the payment of future dividends. Further details of Recall Holdings’ dividend policy will be published in the scheme book. The demerger will not change Brambles’ financial policy of targeting a ratio of net debt to EBITDA of less than 1.75 times," Brambles said.
Brambles told the market that it "continues to expect Underlying Profit, including the contribution of Recall, for the financial year ended 30 June 2013 of between US$1,030 million and US$1,060 million at 30 June 2012 exchange rates. "That compares to the underlying profit of $US1.009 billion reported by the company in August, 2012 and the forecast guidance issued at the same time of US$1,010 million to US$1,070 million," Brambles said.
