Colin Barry

Brinks / BHS Spinoff (BAV, Tuesday, Week 9)


What kind of companies attract activist investors:
-- Mismanaged => get on board, influence/replace management
-- Conglomerates => Valued at less than the sum of its parts
-- "Unlock" value on B/S (ex. real estate) => undervaluation/suboptimal capital structure; short vs. long-term
-- Ownership structure => Easy to seize control/accumulate a position

Is Brinks undervalued? Probably.
Yes: room to take on debt, market leader, etc.
No: not feasible to "unlock."

Leveraged Recap?
Take on debt, pay cash to shareholders/repurchase, gain Interest Tax Shield.

Good idea: Brand will not be important to BHS, firm is more attractive to a strategic buyer in two parts.
Bad idea: Lose synergies (overhead, cross-selling, risk mgmt), BHS is barely cashflow positive, can't really license brand in this industry.

In hindsight, it is not clear that there was any benefit to spinning off Brinks and BHS...
Rebranding was costly; BHS portion was eventually bought by Tyco.
Combined equity value of Brinks and BHS had been basically flat since spinoff; S&P 500 increased 19%.