In August 2016, Brambles Limited (ASX: BXB) announced about entering into an agreement to combine its oil and gas container solution businesses- Ferguson Group and CHEP Catalyst and Chemical Containers (CCC) with Hoover Container solutions to create an independent joint venture company – Hoover Ferguson Group (HFG). The joint venture would be 50% owned by Brambles and 50% by Hoover’s shareholders. BXB has now updated about completion of transaction in October 2016 post receiving the requisite regulatory approvals. A recap of the key aspects includes:
Becoming a second major player in oil and gas container solution businesses: The JV will create a global player without additional capital outlay. The JV would bring substantial synergy opportunities including EPS accretive synergies. HFG is set to establish the largest global fleet of rigid steel intermediate bulk containers and cargo container units with more than 110,000 rental units to be offered worldwide, across a vast global network of more than 70 service centers in 26 countries. This will be supported by over 500 expert team members. HFG would have a prominent market presence in every energy basin and petrochemical manufacturing center in the world. HFG would continue to deliver a globally diverse suite of products, services and solutions, including the manufacturing of a comprehensive range of IBCs, catalyst containers, trash compactors, food grinders and offshore workspace/accommodation modules.
Footprint for HFG (Source: Company Reports)
Financial implications and accounting impact of Brambles: The transaction has been highlighted to be neutral to Brambles underlying earning per share in FY17. HFG is targeting annual cost and capital expenditure synergies of US$5-10 million within 3 years and would seek to maximize substantial revenue opportunities relating to cross selling services and products. Brambles is to receive consideration of over US$75 million from First Reserve to equalize ownership of HFG wherein US$ 40 million is receivable in cash upon transaction close with the balance deferred. Brambles would contribute Ferguson and CCC to HFG with debt, including a US$150 million subordinated shareholder loan with a cash interest rate of 10% per annum. HFG is to target independent funding facility as soon as capital market conditions are conducive- enabling full repayment of Brambles shareholder loan. HFG is to also maintain a borrowing cost ratio consistent with the long-term asset lives in the industrial container-leasing sector. As per the accounting impact of Brambles, FY16 results from oil and gas (i.e., Ferguson and CCC) are accounted for as to the continuing operations. The transaction cost of ~S$7 million has been recognized as significant item over the FY16 and FY17 period.
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