Brink’s better perform before it’s forced to sell
The armored car transportation company must get margins up to 7% worldwide by 2017 or shareholders will demand a formal auction.
Brink's Co. (BCO) needs to improve its route logistics operations and stock price in 2016 or face pressure from inside and outside the armored car transportation company to sell a major division or the company outright.
That's after the cash handler reached a settlement last week with Starboard Value's Jeff Smith that included three new dissident board members on the company's nine-person board and a plan to have CEO Thomas Schievelbein step down by the 2016 annual meeting.
And people familiar with Smith's thinking note that Brink's will likely take steps to try improve the business and its share price in the coming months and if that doesn't work seek to sell itself or a major division.
"When you get changes to the board like that then the company should be more open to options to improve shareholder value," said a person familiar with Starboard.
And analysts following Brink's contend that two of the three newly-installed directors are individuals who will seek to help engineer a turnaround while the third, a Starboard insider, will keep an eye on a potential sale.
Ian Clough (pictured), one of the Starboard-backed directors, has been a managing director at TNT Express N.V. and brings with him an expertise in logistics that Brink's needs, according to Jeff Kessler, an analyst at Imperial Capital in New York.
Another new director, George Stoeckert, was previously chief of North America and Internet Solutions for Dun & Bradstreet and has an expertise in internal systems and business infrastructure. Kessler argues that Stoeckert's skills are an important addition to improving Brink's route logistics operations. Brink's had fallen behind its rivals, including Loomis AB, in terms of setting up an effective business infrastructure.
Finally, Starboard chief of research Peter Feld was installed on Brink's governance and nomination committee and will be heavily involved in finding a new CEO and an independent chairman (Another part of the deal involved the CEO no longer holding the chairman role - a good governance move that investors are likely to support). However, Kessler notes that Feld may seek to exert pressure on Brink's to sell itself if results don't improve faster.
Brink's will be under major pressure to meet their own goals of getting their margins up to 7% worldwide by 2017 - up from the 5% estimated by management for 2015 -- or they will be under significant pressure to sell the company. He added that its U.S. division must meet a similar return threshold while its Mexico unit needs to have an even higher performance. A Brink's spokesman declined to comment.
Brink's Latin America unit is its most profitable and fastest growing region, partly because skyrocketing inflation has resulted in greater use of cash that is often delivered in armored vehicles and partly because the value of trusted cash handling companies in the region is at a premium. As a result, under pressure from Starboard, Brink's could be pushed to sell it or the whole business.
Kessler notes that Loomis - its major armored car transport rival - might be interested in Brink's Latin American operations because it doesn't have a large presence in the region. Prosegur Compañía de Seguridad, S.A. in Spain does have a large presence there but could be interested as well, he said.
It would be unlikely that Loomis, which is smaller than Brink's, will seek to acquire the whole business. However, Kessler notes that another rival, G4S plc, in the U.K. and Prosegur are big enough and could be interested while Garda World Security Corp., another logistics company, is also smaller and would be less likely to make a bid.
Starboard has continued to accumulate shares during its campaign, which launched in May with an 8.2% stake. The fund reported Jan. 5 that it held a 12.3% stake - an investment that will give Smith a laser focus on shareholder value improvements. The fund's initial investments were made between March 10 and May 1 at prices ranging from $26.38 a share to $29.24 a share - prices mostly above the company's recent share price of $26. However, the fund has continued to argue that Brink's is undervalued and makes an attractive investment opportunity.
Brink's has also come under pressure from another big insurgent investor in recent months -- Mario Gabelli -- whose GAMCO fund is no stranger to activism and proxy fights to install dissident directors. Gabelli reported owning a 7.2% stake in a July filing. Gabelli (pictured) has said previously he "continues to believe" that Brink's trades at a "significant" discount to its private market value and in December 2014 he noted that he was thinking of launching a proxy fight at Brink's if the company didn't improve soon. A successful contest by Gabelli in 2016 could tip control of the board into activist hands.
The Starboard settlement came just six days ahead of a January 9 deadline for Smith to nominate a slate of dissident director candidates to Brink's board at its 2016 annual meeting. Keep an eye out for a possible Gabelli slate early in 2017 if things don't improve by then.
Brink's has paid dividends to shareholders of $0.30 a share or $14.6 million in the first nine months of 2016 and it has cash and cash equivalents on the books of $146 million as of September 30. The company hasn't issued stock buybacks but they could be pressured to do so by Feld and Starboard in the coming months.
Between Gabelli and Starboard, almost one-fifth of the company shares is in activist shareholder hands.
That means more changes, possibly stock buybacks and M&A could be in the offing.
