Asciano's strategic withdrawal

The slippage in Brambles' share price yesterday could suggest that the fevered speculation of an imminent bid by Asciano for Brambles may have subsided a little.

The speculation had solid foundations. Asciano, apart from grabbing a foothold on the Brambles register, has been organising funding and preparing for an ambitious $20 billion-plus assault on the international pallet-hire group.

That assault would have looked less like conquering Mount Everest in July, when Brambles shares were trading well below $11, than in more recent days. Supported by Asciano's obvious ambitions, the shares have risen above $14 and, until yesterday, appeared headed for $15.

That's despite the fact that nearly a third of Brambles' earnings are in US dollars and about half its earnings are exposed to the faltering US economy.

Asciano, with a market capitalization of a little more than $5 billion, is a fraction of Brambles' size. Even with some ingenious financial engineering and repackaging of Brambles' pallet assets and the sale of its Recall document storage and management business, a hostile attack on Brambles would be a formidably difficult exercise.

Current credit market conditions would not favour a highly leveraged transaction and to make matters worse the assistant treasurer, Peter Dutton, has announced changes to the tax treatment of scrip-based acquisitions that could make any transaction mainly involving scrip consideration (and one assumes that Asciano would need to offer equity, given the relative sizes of the companies) less appealing for the acquirer.


Thus, Asciano appears to be cooling on the notion of an imminent bid, apparently preferring to sit back and hope that Brambles stumbles and makes itself vulnerable.

With a share price that appears to incorporate a significant bet on a takeover emerging and challenging conditions in some of its key markets, Brambles would be aware of the risk of "doing a Coles" -- either over-promising or under-delivering and effectively gifting itself to the first group to put up its hand.

If that occurs, Asciano has positioned itself at the head of queue. It may also, of course, be feinting a strategic withdrawal, hoping that deflates its target's share price and again puts Brambles into play.