2006-09-04 Brambles May Increase Dividend to Avoid Takeover, JPMorgan Says
(By Vesna Poljak)

Brambles Industries Ltd., the world's biggest storage pallet company, may increase its dividend payouts and raise debt levels to avoid a potential takeover approach, JPMorgan Chase & Co. said.

Brambles may borrow $2.5 billion over the next two years and pay extra dividends of A$1.50 a share in fiscal 2007 and A$1 a share in 2008, according to Matthew Crowe, a Sydney-based analyst at JPMorgan who has an ``overweight'' recommendation on the stock.

``Takeover speculation may force Brambles to adopt a more aggressive debt profile,'' Crowe said in a report yesterday. ``For the first time since the merger of Brambles and GKN Plc, there is a realistic chance that Brambles can be taken over.''

Brambles gets almost 90 percent of its profit from the CHEP pallet unit which counts General Motors Corp. and Procter & Gamble Co. as customers. The company operates in 45 countries and in August reported full-year earnings tripled after improvements at CHEP and the sale of its waste collection division.

Brambles is combining its dual-listed stock structure by buying back London-traded shares and keeping only its primary- listed Australian stock, making it easier to acquire, Crowe said.

The broker cited General Electric Co., the world's second- biggest company by market value, as a potential buyer of Brambles.

``General Electric has been interested in the pallet rental industry for many years,'' he said. ``There is only one realistic way of doing it -- it must buy CHEP by taking over Brambles.''

A leveraged buyout of the company was also possible because of Brambles's ``strong defensive cashflows,'' Crowe said.

Any takeover offer would have to be at least A$18 a share and as much as A$20 a share, JPMorgan estimates. Shares of Brambles gained 13 cents to A$13.18 at 10:28 a.m. in Sydney today, giving the company a market value of about $16 billion. The stock has risen 22 percent since reporting full-year profit Aug. 23.

To contact the reporter of this story: Vesna Poljak in Sydney vpoljak@bloomberg.net