2006-06-20 Brambles draws up shortlist of waste suitors (By Russell Hotten)

Brambles is drawing up the final shortlist of buyers for its UK waste- management business after selling its Australian operations to private equity firm Kohlberg Kravis Roberts (KKR) for £702m.

Buyout firms BC Partners and PAI Partners, along with the waste management group Sita, are thought to be among the front runners for Brambles' business in the UK, Cleanaway, which is expected to raise a further £600m.

Brambles' financial year ends on June 30 and the Anglo-Australian company is thought to have told potential buyers that it wants to complete the Cleanaway sale by then. Cleanaway Asia, a much smaller waste management business based in Taiwan and China, will then be the company's only waste management asset.

Waste management operations have attracted strong private equity interest. Guy Hands, who runs Terra Firma, said last year that he would use his company, Waste Recycling Group, to invest in the sector over the next 10 years. He apparently considered a bid for Cleanaway UK but was reported to have pulled out.

L ast year Brambles announced a restructuring that included disposals and shifting the company's main listing from London to Australia. The company will focus on its pallets arm, Chep, and data-management division, Recall.

Brambles' chairman, Don Argus, said: "The sale of these businesses represents a significant milestone in the execution of our strategy to focus on Chep and Recall, our premium growth businesses."

The sale brings the total proceeds of Brambles' disposals - including Cleanaway Germany, Industrial Services Northern Hemisphere and regional businesses Interlake, TCR and TMF - to $2.44bn (£1.32bn).

An analyst said that the price of the Australian operation "sends a positive signal for the sale of Cleanaway UK and they've flagged returning at least A$2.8bn (£1.1bn) of capital to shareholders, so I suppose that will inch northwards a bit".

Roger Collison, an analyst with Tyndall Investment Management, said he was not surprised that KKR had walked away with the assets. "The fact that they've been willing to pay something more than 15 times [2006 forecast full-year] EBIT, (earnings before interest and tax] is an outstanding price for these sorts of assets and would probably give us increased confidence that the UK [business] will be sold for a good price as well," he said.

The acquisition is KKR's first in Australia and its third major acquisition over the past year. The deal is the largest management buyout ever in Australia.