SCDigest Editorial Staff

Brambles, the Australian the parent company of the CHEP pallet business, moved into the plastic container and limited use wood pallet market this week as it announced its intent to acquire Dutch-based IFCO Systems, creatng a global pallet and container giant.

It is not a small deal, with Brambles paying some $1.25 billion dollars to acquire IFCO from its current private equity owner.

IFCO currently has revenues of about $750 million dollars, and when the deal is approved the acquisition will increase total CHEP sales by about 16%.

CHEP is the largest provider of re-usuble wooded pallets and pallet pooling services. IFCO is the largest provider of re-usable plastic container and in the USis the largest wood pallet management services in the US. The deal will substantially increase CHEP's presence in these latter two categories and enable it to offer a more on-stop service for all three types of platforms.

The deal also gives CHEP immediate additional access to the European market to expand from its heavy dependence on US sales.

IFCO operates a pool of 112 million re-usable plastic containers, or RPCs, which are primarily used to move fresh produce from producers to grocery retailers. IFCO employs approximately 4,000 people, operating in 23 countries. It is the largest US provider of wood pallet management services, supported by 157 total locations, of which 56 are primary pallet refurbishment centers and 101 are other operating and satellite locations,

Once approved, the transaction would create a company with sales revenue of approximately $5 billion, of which more than $4 billion would come from pooling and pallet services. The Brambles group would have more than 16,000 employees, working in 49 countries across six continents.

The deal should increase the percent of company revenue coming from plastic containers and services from just 3% currently to about 13%.

The move comes as CHEP has been battling years of under performance financially. Brambles had gone through five CEOs in the eight years before the American-born Tom Gorman was given the reins a year ago.

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In the US, CHEP revenues have been declining and profit margins being squeezed.

Earlier this year, Brambles was fending off concerns that it was losing market share to rival Intelligent Global Pooling Systems (iGPS), which uses plastic pallets. In June, Brambles confirmed it had lost its contract with food giant Con Agra, which had been using 7 million CHEP pallets per year.

Gorman has pledged to improve profit margins to the mid-20 per cent level (it's about the mid-teens now) and to improve customer relationships.

In the fiscal year ending in June, CHEP America had an profit from operations of $235 million on sales revenue of $1.53 billion (down about 3%.) Conversely, in the EMEA markets, operating profit was $325 million on lower sales volume of $1.48 billion.

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