Brambles to hive off Recall arm

Brambles has resorted to spinning off its document-storage business, Recall, into a separately listed company on the Australian sharemarket after failing to sell the unit to trade buyers last year.

Brambles has resorted to spinning off its document-storage business, Recall, into a separately listed company on the Australian sharemarket after failing to sell the unit to trade buyers last year.

In the biggest company split in Australia since Westfield spun off a retail trust in 2011, the world's largest supplier of wooden pallets will list Recall as a separate company with a market value estimated at $1.1 billion to $1.5 billion by December. It will make Recall a top-150 company on the ASX.

Recall has faced what management have termed a near "perfect storm" over the last year, including a large decline in pre-tax earnings in the second half. But Brambles chief executive Tom Gorman emphasised the demerger would allow Recall to "pursue its own opportunities" while Brambles could focus on its pallet-pooling operations.

"After a disruptive year [for Recall] ... the focus is now going after some of those business opportunities. We do believe there continues to be top-line growth opportunities," he said.

Brambles abandoned in June last year attempts over almost a year to sell Recall to trade buyers for as much as $2 billion. It blamed "challenging capital markets" and low offers for the lack of progress.

The Sydney company expects Recall to post an underlying profit of between $US138 million ($151 million) and $US142 million for the year to June, down from $US174 million in 2011-12.

Recall bore the brunt of a sharp decline in paper prices in the first half, while a slowdown in transactional activity affected the business in the second half. Its main competitor is US company Iron Mountain, whose stock price has tumbled 32 per cent over the past two months.

The document-storage business has a workforce of 4500, and its main operations are in North America, Europe and Australia. About a third of Recall's business is here.

While companies could still be interested in buying Recall, Mr Gorman said it would have to be a "significant premium" to stop him pursuing a listing by the end of this year.

The former Ford executive said it had been difficult for Recall to "shine well" in the shadow of its parent, whose pallet pooling business had higher growth potential.

Analysts believe a demerger makes sense because Recall is a "non-core asset".

Morgan Stanley has said that research on demergers in Australia over the past 15 years, including Fosters and Orica, suggested they had a "strong track of creating value".

Shareholders will vote on the latest demerger in December, and subject to them giving approval, Recall will list on the ASX shortly afterwards.

They will gain new shares in Recall proportionate to their existing Brambles stock. Recall will carry about $450 million in net debt once it is spun off.

Ian Blackburne, the chairman of poker machine maker Aristocrat, has been named chairman of Recall. The full make-up of its board will be revealed when a scheme booklet is released in October. Recall chief executive Doug Pertz will remain in the top job.

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