Brambles Limited has announced an agreement to combine its Oil & Gas container solutions businesses – Ferguson Group (Ferguson) and CHEP Catalyst & Chemical Containers (CCC) – with Hoover Container Solutions to create an independent joint venture company – Hoover-Ferguson Group (HFG). The joint venture will be 50 percent owned by Brambles and 50 percent belonging to Hoover shareholders. Hoover’s major shareholder is First Reserve, a leading global private equity and infrastructure investment firm exclusively focused on energy.
Key features of the announcement
- The combination of these businesses will create the second-largest global provider of container logistics solutions to the Oil & Gas and Chemicals sectors, delivering enhanced scale, capabilities to support customers worldwide and substantial synergy opportunities.
- The formation of HFG enhances Brambles’ position in Oil & Gas and Chemicals container logistics, consistent with the Group’s strategy and without any additional capital outlay.
- The transaction provides Brambles with long-term optionality in relation to the scale of, and allocation of capital to, the Group’s Oil & Gas containers investment.
- HFG will operate under the leadership of Hoover chief executive Donald Young and an eight-member board of directors, with equal representation from Brambles and Hoover shareholders. The HFG CFO will be a Brambles nominee.
- A shareholder agreement will govern key aspects of the joint venture, including governance and exit provisions.
- Brambles anticipates that the transaction will complete during October 2016, subject to regulatory clearance and customary conditions precedent.
Brambles’ CEO Tom Gorman said: “Our interest in HFG will enhance our position in the Oil & Gas and Chemicals container logistics sector without the need for additional capital deployment, and creates a strong capital structure for the venture while enabling us to maintain strategic optionality over our future investment.”
“This transaction brings together operating businesses with complementary product ranges and geographical footprints as well as access to substantial cost and revenue synergies that will strengthen HFG’s competitive position and enable it to serve customers and pursue growth from a position of strength.”
- The deal is expected to be neutral to Brambles’ underlying earnings per share in FY17, prior to transaction costs (US$7 million over FY16 and FY17), and accretive as cost and revenue synergies are realised. HFG is targeting annual cost and capital expenditure synergies of US$5-10 million within three years and will also seek to maximise substantial revenue opportunities related to cross-selling services and products globally.
- Brambles will receive consideration of approximately US$75 million1 from First Reserve to equalise ownership of HFG – US$40 million receivable in cash upon transaction close with the balance deferred.
- Brambles will contribute Ferguson and CCC to HFG with debt, including a US$150 million subordinated shareholder loan with a cash interest rate of 10 percent per annum, payable quarterly.
- HFG will target an independent funding facility as soon as capital market conditions are conducive – enabling full repayment of the Brambles’ shareholder loan and allowing HFG to be self-funding.
- HFG will seek to maintain a borrowing ratio consistent with the long-term asset lives in the industrial container leasing sector.
Oil & Gas impairment to be recognised in FY16
- Brambles will recognise an impairment charge of US$38 million against the value of its Oil & Gas assets as at 30 June 2016, reflecting the current market conditions in the Oil & Gas sector. The non-cash impairment charge against goodwill will be treated as a Significant Item in the FY16 financial statements.
- Brambles’ FY16 guidance for constant-currency growth in sales revenue and Underlying Profit of 8 percent to 10 percent remains unchanged.