2006-10-09 Palatable Brambles goes on defensive (Vesna Poljak)

BRAMBLES Industries may increase its dividend payouts and debt to avoid becoming a takeover target, according to JPMorgan Chase & Co.

Brambles may borrow $US2.5 billion over the next two years and pay extra dividends of $A1.50 a share in fiscal 2007 and $A1 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," Mr Crowe said in a report yesterday. "For the first time since the merger of Brambles and GKN plc, there is a realistic chance Brambles can be taken over."

Brambles gets almost 90 per cent of its profit from the Chep pallet unit. The company operates in 45 countries and in August reported that full-year earnings tripled after improvements at Chep and the sale of its waste collection division.

Brambles was 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, Mr Crowe said.

The broker cited General Electric, the world's No. 2 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 buy-out of the company was also possible because of Brambles' "strong defensive cash flows," Mr Crowe said.

Any takeover offer would have to be at least $A18 a share and up to $A20 a share, JPMorgan estimated. Brambles shares ended at $A13.20, up $A15¢.

Brambles shares have risen 22 per cent since it reported its full-year profit in August.