(This story has been posted on The Wall Street Journal Online's
Deal Journal Australia blog at
http://blogs.wsj.com/dealjournalaustralia/)
By Gillian Tan
Bank of America Merrill Lynch may be advising Brambles on the
sale of Recall, alongside UBS, but its analysts reckon there's an
increasing likelihood the company will hold onto that asset for
now, choosing instead to revisit a sale at a later date.
In a note to clients, BofA Merrill Lynch analyst Matthew Spence
said the 7.5% decline in the S&P/ASX 200 in the month to date,
and the fact U.S. high-yield debt markets have dried up
temporarily, make it hard to see a sale of the document management
business being completed in the near-term.
"Given the uncomplicated nature of the business, we think a sale
could be revisited at a later date," Mr. Spence said.
"In our view the most significant potential consequences of that
could be no up to A$500 million buyback, a paring back of capital
expenditure to be directed to IFCO and the likely introduction of a
dividend reinvestment plan to incrementally pay down debt," Mr.
Spence said.
He added that the sale of Recall would have reduced concern
around Brambles' BBB+ credit rating and the fact that its gearing
is currently 2.2 times, above its target ratio of 1.75 times.
BofA Merrill Lynch reckons Brambles may consider underwriting
two consecutive dividend reinvestment plans to fund the de-gearing,
and estimates the company could pay dividends of 14 cents a share
in the first half of fiscal 2013 and 16 cents a share in the second
half.
"Underwriting both dividends could raise around A$450 million,
which in our view would adequately cover the debt pay down
requirements," he said.
Brambles fell 2.7% on Wednesday following remarks that it was
unable to announce the outcome of a sales process for Recall within
the previously announced timeframe, but that it remained in
discussions with parties interested in buying the business.
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-By Gillian Tan, of The Wall Street Journal; +61-2-82724694;
gillian.tan@wsj.com