While there have been many notable stories this year, the announcement that Brambles Ltd is going to sell off its CHEP Recycled division could have a profound impact on the recycling sector for years to come. CHEP Recycled is the largest pallet recycler in the United States, and whoever buys it could be in a position to service national accounts and dominate some markets.
But that all depends on the strength of the company, its customer base and assets at the time of sale. Competitors have been trying to chip away at CHEP Recycled accounts, and some customers are a bit nervous about what could shake out. Brambles has indicated that it will not sell off the company in regional chunks. Instead, it is looking to sell the entire thing including equipment, inventory, locations, etc.
The Pallet Enterprise staff has selected this divesture decision by the parent company of CHEP as its Story of the Year because of the long-term ramifications of the proposed sale. And it has been a hot topic for recyclers since the announcement was made in August.
After a thorough review of the entire business, the new CEO of Brambles Ltd., Graham Chipchase, and company leadership have decided to put up for sale its white-wood recycling business in North America, which is the nation’s largest pallet recycler.
Originally, this business was known as IFCO, but was recently rebranded as CHEP Recycled, and its sale could have a major impact on the U.S. recycling market.
CHEP Recycled operates a network of pallet management services in the United States and Canada that supplies and recycles over 90 million primarily white-wood pallets annually. Brambles acquired its U.S. recycled pallet business as part of the global acquisition of IFCO Systems in March 2011 and the Canadian business, Paramount Pallet in November 2011.
Chipchase commented, “Our strategic review highlighted that CHEP Recycled is not a core part of Brambles and that the business has not delivered the financial returns we require to generate sustainable shareholder value. In addition, under new ownership, CHEP Recycled could be operated with a lower cost structure, providing it with a competitive advantage and access to additional revenue opportunities not currently available. For these reasons, we believe that CHEP Recycled’s overall returns and growth outlook are more likely to improve under alternative ownership.”
The Brambles analysis takes into consideration the fact that pallet recycling and pooling are two vastly different businesses. And frequently those business models do not mesh well together.
Brambles is seeking to divest the 80 plants and TPM (total pallet management) sites which currently service its recycled pallet operations. As part of the transaction, approximately 2,200 employees who work at these sites will transfer to new ownership on completion of the sale.
In essence, it is selling off the core supply of these locations, equipment, buildings/leases, customer accounts and workforce. The cores and accounts are probably the biggest draw. The locations may be good for some companies, and redundant for others.
Brambles will retain the 73 pooled pallet service centers and TPM sites currently managed by CHEP Recycled, with approximately 1,400 employees remaining with the group to manage these sites.
So, who is likely to buy the business? That depends on the final price tag as well as the true financials underlining the division. Brambles is currently seeking bids for the division. It commented, “It is Brambles’ preference to sell CHEP Recycled, including Paramount Pallet, as an entire business; however, parties can make an offer for one or the other. Brambles is not considering selling on an individual plant basis.”
The company expects to complete the sale process by the middle of 2018.
