Brink's Company: Activists Push For A Spin-Off

Brinks Company: Activists push
for a spin-of
Masters in Finance | Applied Corporate Finance
Duarte Marques 989
Mafalda Oom Torres 948
Teresa Botelho Neves 1029
Francisco Vieira de Campos
April 20th 2015 960
Gonalo Pereira de Almeida
1034
Nova School of Business and Economics

Agenda
Executive Summary
Industry Overview
Brinks Company
Conglomerate Discount
Activists
Issues being target my activists
Brinks is undervalued by the Markets
Alternatives to Spin-ofs
Value created by Spin-ofs
Valuation
Final Recommendation
Agenda
Executive Summary
Industry Overview
Brinks Company
Activists
Valuation
Executive Summary
The decision of performing a spin-off follows pressure on the company

from three activist shareholders who felt that Brinks has been chronically
undervalued and separately it would be worth more than combined
Since Top Management and activist shareholders were not align in terms
of what was best for the company, the case presents both sides.
Moreover, an assessment of the arguments was performed
Nevertheless we have to bear in mind that Brinks Company is made of

two different business that seem to share very few operational synergies,
which may be explained by the conglomerate discount that the
companies was under
Also alternatives to the spin-off were take into account, however we did
not exploit in so detail as the spin-off, since it was the main issue in the
case
Agenda
Executive Summary
Industry Overview
Brinks Company
Activists
Valuation
Industry Overview- Brinks Inc.
Globally United States

$14bn
35%
Mark
Global market for security
logistics et
Projections to grow Shar
Global Market Share e
Brinks; 17%
Largest
Smaller Competitors; 50% 4Securicor; 14%
competitor
with 30%
Securitas; 13%
market share
Prosegur; 6%
Primary factors in attracting

Brinks 4Securicor and retaining customers in
the industry:
Securitas Prosegur
Reputation
Smaller Competitors Service Quality
Price
Industry Overview Brinks Inc. industry
Cost structure
Employ
ee
Service
Wages benefits
Standar Revenue
Overall
ds
5%< growth
for the
>9%
level of
security industry
Drivers for growth in the
particular industry:
Overall level of economic
activity, in particular to retail
activity.
Amount of paper currency in
Cost Structure circulation.
High quality and reliable

insurance coverage as an
important factor in attracting and
retaining customers and risk
management
Industry Overview Brinks Home Security
Market for Electronic Security System
I. II. III. IV. V.

Sale Leasi Installati Monitori Servi
s ng on ng ce
$30 billion globally where US accounted for nearly US Rest of

half of total annual revenues. the
World
The North American Market is highly fragmented with the top five companies accounting for
only 40% of the market which enables attractive opportunities for the M&A industry;
ADT, a subsidiary of Tyco International, is the largest company in the market (estimated
market share of 30%). Following ADT, BHS states a market share of 3%, Protection One of
2%, Stanley Convergent Security Solutions of 2% and Monotronics International of 1%.
Company Service and Product Pric

reputation quality e
Ability to identify and solicit prospective Market
costumers visibility
Industry Overview Brinks Home Security
Market for Electronic Security System
Factors driving industry growth
Heightened Increase in dual

Higher capital
security income
spending
awareness households
Higher capital
Demographic Higher capital
spending by
changes spending
business
Growth in home and commercial security system

installation and monitoring expected to grow at 3%
annually from 2009 until 2014 in the US
Agenda
Executive Summary
Industry Overview
Brinks Company
Activists
Valuation
Brinks Company
Brinks was founded in Chicago on May

5th , 1859, when Perry purchased a
horse-drawn wagon and made his first
delivery.
In the early days, Brink used his single
wagon to transport travelers' luggage
between Chicago rail stations and
1981= Payrolls deliveries;
hotels.
As a curiosity, In 1871, the Great 1962= Pittston Company acquires
Chicago fire destroyed some 18,000 Brinks, by then known as an
buildings, including the headquarters armored car company;
of Brink's City Express. Miraculously, 2000= Activists investors were
Brink's horses and wagons were saved calling for Brinks to sell its BAX
and the company was back in unit which ended up happening in
operation within a week. November 2006 for $1.1 billion to
Deutsche Bahn Group, a
transportation and logistic
company. Brinks Inc. worldwide
provider of secure
Perry Brink
BRINKS transportation
Brinks Home Security
Residential Alarm company
Agenda
Executive Summary
Industry Overview
Brinks Company
Activists
Valuation
Conglomerate: Company that comprises multiple different
corporations that operate in a wide rang of business. Usually there is a
parent company (Brinks Company) with one or more subsidiaries
(Brinks
Problems Inc. conglomerates:
with and BHS)
There are few synergies between unrelated business;
The extra layers of management needed, compared to

standalone businesses increases costs;
A conglomerate is likely to disclose less information than
standalone businesses; many numbers are disclosed
consolidated, rather than separately for each business;
The complexity of a conglomerates' accounts can make

them harder to analyze - and makes it easier for
management to hide things;
Management are very unlikely to have real expertise in all
areas of the business, leaving it more difficult to align
interests.
Conglomerates usually are traded at discount
Why do conglomerated typically trade below

their sum of the parts?
V(A+B) < V(A) Conglomerate discount: is the difference between what the
+ V(B)
Sum-of-
businesses are worth separately, and the actual value the
parts market places on the conglomerate. Its name derives
valuation essentially for that tendency of the stock market to
undervalue the stocks of a conglomerate business.
Investors often point to the conglomerate discount as a
market inefficiency and view the discount as a way to buy
undervalued stocks.
Market cannot understand multi-division firm and attach a
Stock Market correct multiple to its earnings or cash flow
Explanations Companies dont allocate analysts from each market segment
to study conglomerate firm
Value of
Value of Value of
Brinks Conglomera
Brinks Brinks te Discount
home
Inc. Company
security
Agenda
Executive Summary
Industry Overview
Brinks Company
Activists
Valuation
Activists
Activist investor: An individual or group that purchases large

numbers of a public company's shares and/or sought to obtain seats on
the company's board with the goal of effecting a major change in the
company. Activists deliberately accumulate substantial stakes in
undervalued companies to force changes that will increase the share
price so they can sell at a profit.
Target: Activist investors look for companies that are being
mismanaged, have room to cut costs, could be run more profitably as a
private company or have other kind of problems that the activist
investor believes is able to fix to make the company more valuable.
Hedge
Funds
Private Wealth
Equity Individu
Firms als
Exampl
es of
activist
s
Activists
Private Investment Fund run by

MMI Clay Lifflander
Investme Known for gaining positions in
nts companies shortly before buyout
deals were made and had a
reputation for its buyout touch.
U.S.-based hedge fund was

Pirate founded in 2002 by Tom Hudson
Activists Capital Their strategy was to buy stocks
and take on management to drive
stock prices in the companys
favor.
One seat at Brinks board of
Hedge fund founded by Warren G.
directors
Steel
Partners Litchtenstein
LCC Invest in small-cap value stocks
where they felt they could create
value through active relationships
with managements
Activists
Active on Increase
Activist firms Stock
shareholder manageme Performanc
nt es
How do activists expect to make money?
Activists shareholders try to be active on firms management, in

order to drive the strategy of the company to their benefits. In
this case, they want to change the actual strategy of the firm
because they believe that the actual strategy does not increase
shareholders wealth.
They believed that the company was undervalued.
They want to increase their wealth by increasing stock
performances and make money out of that.
Agenda
Executive Summary
Industry Overview
Brinks Company
Activists
Valuation
Issues being target by activists
Brinks was trading as much as 35 % below its intrinsic value.

They were frustrated that the board and management remained committed
to its growth strategy.
Instead, they wanted Brinks to pursue strategic options to improve the
stock price.
MMI became the second largest stakeholder in BCO and given its frustration
it was nominating 4 directors for election to board at BCOs 2008 annual
meeting.
Pirate Capital was seeking for return because 2006 was the worst
performance of the fund (only returns of 9.5% compared to 15.8% from
S&P500)
Steel Partners was making pressure to Brinks Company pursue strategic
alternatives recommended by it.
Brinks Inc.
Brinks
Tax-free
Compa
split- up Brinks
ny
Home
Security
MMI Investments Recommendations
November
MMI announced
November November that it was
MMI increased BCO sold BAX nominating four
its ownership unit directors for
in BCO to 6.7% election to board
at BCOs 2008
200 200 200 annual meeting
5 6 7
April December July

Submitted a letter Four strategic Refined its
recommending that it alternatives: a analysis and
divest its BAX unit strategic recommended
acquisition, a a tax-free spin-
BAX had a cumulative net leverage buyout, off
loss of $50 mm over the splitting up BCO,
last 5 years and a leveraged
This was underpricing the recapitalization
company
Pirate Capital Recommendations
November
Recommended to
initiate a Dutch
tender saying that
was an opportune February
time.
They requested that Announced that
Tom Hudson be Hudson would
appointed to the take a seat on the
board immediately board
200 200
6 7
August January August

Letter to the board Letter asking for Conduct a survey of
encouraging BCOs to a detailed report the 100 largest
take immediately steps about MMI shareholders to
to unlock long-term Investment determine the
shareholders value by strategies interest of a Spin-off
retaining an They also 49 % were in favor
investment advisor to recommend that of the spin-off and
explore the sale of the they should have another 18 %
company
BCO failed to do what two members on interest in spin-off
Pirate Capital asked the board but they wanted a
deeper analysis by
Steel Partners LLC Recommendations
200
8
January
Send a letter to the board saying that the company is significantly undervalued and
were disappointed that the strategies implemented by the company didnt consider
their and the other shareholders recommendations. If Brinks will not pursue a spin-off
or other strategic alternative, they demand that Brinks pursue an immediately sale of
the company that maximizes value for all shareholders. They also say that due to the
undervaluation, the company should be aggressively buying back shares and should
significantly increase its repurchase program.
Agenda
Executive Summary
Industry Overview
Brinks Company
Activists
Valuation
Brinks is undervalued by the markets
Trading basis:
Strategic
40% Transaction Basis:
undervalued vs.
public peers 35% undervalued
based on 2006 vs.recent multiples
EBITDA in comparable deals
multiples
BCO
chronically
undervalue
d
Why? n s in
la tio ing
alcu ollow
C ef s
th slide
Key Valuation drivers that may not have

been considered
Possible
Synergies
Decreasing Legacy
BAX Global former healthcare
sale operations
liabilities
expenditures
Growth
prospects Secure
both business
domestically model
and Abroad
Aggressive
BHS growth
Synergies
Ability to use the strong cash flow generation from Brink's Inc. to fuel
growth spending at Brinks Home as well as leverage the strong
Brinks brand name
BAX Global sale
Reduced the required funding for legacy liabilities by $225mm
Decreasing former operations expenditures

Declining required funding in legacy healthcare liabilities related to
coal as the beneficiary group ages, since the company is no longer
involved in this business
Growth prospects both domestically and abroad
New opportunities to expand to other markets (Asia)
Industrys revenues growth in the mid-to-high single digit range
Aggressive BHS growth

Growth drives future revenue but starves current free cash flow
BHS continued to gain market share within this highly fragmented
industry
Economies of scale could be achieved (by leveraging the
infrastructure of monitoring stations over more subscribers)
Potential for higher operating margins as little additional overhead is
required to support additional subscribers
Opportunities to increase its under-presence in the commercial
Secure
marketbusiness model
Strong cash flows and prudent level of self-insurance (low risk
expense)
Other explainable reasons for Brinks

undervalued
Industrys
unfavorable
characteristic
s
Deceptive
association
Missed
with the air
Expectations
freight
industry
Uncertainty
Activist relating to
Shareholders the
demands companys
strategies
Other explainable reasons for

Brinks undervalued
Industrys unfavorable characteristics may lead share price
declines
Sensitive to overall level of economic activity and to retail activity in particular
Highly competitive and fragmented market
Pricing pressures from its competitors
Currency fluctuations impact on revenues since 70% came from outside the US
Missed Expectations
Failure in meeting earnings expectations due to Brinks growth efforts puts it
vulnerable to sharp price declines because markets tend to have a high
expectation for future earnings growth
Deceptive association with the air freight industry
Association with previous air freight industrys high capital costs and cyclicality
might be lowering valuation
BAX Global unit underperformance was an over-hang on the stock
Activist Shareholders demands

Activist Shareholders unsatisfaction and pressure it is not well seen by the
market, which might lead to a lower stock price
Lack of short-term measures to increase shareholders value companys low
leverage might be seen as a sign of lack of effort to invest in business
operations and increase value for shareholders
Uncertainty relating to the companys strategies
It might scare away buyers who buy shares they are more comfortable with
Agenda
Executive Summary
Industry Overview
Brinks Company
Activists
Valuation
Alternatives to Spin-of
We believe that there are strategic alternatives that the

company should take into account that can benefit from the
current strength of the mergers and acquisitions market as
well as the equity and credit markets in order to achieve the
true value of the company.
Leverag
Sale to a
Share e
LBO strategi
Buyback Recapita
c buyer
lization
Alternatives to Spin-of |
Shares Buyback
A share buyback is a company buying back its shares from the
marketplace. Typically, it can be done through a tender offer or through
the open market.
Increases shareholders value by increasing the percentage of
ownership held by each investor and reducing the total number of
shares outstanding.
Boost Share Price, the buyback means there are fewer shares
trading on public markets and this tends to strengthen the share
price, at least in the short term.
With fewer shares trading, the EPS tends to rise, this helps the
company to beat market expectations and helps drive a higher
stock price.
Signs
Signalsthe market that
to investors thatthe company
there are notbelieves it is undervalue
other profitable and
opportunities
has confidence
to grow in itself,Every
the business. whichdollar
can be translated
used in an
to buy up upward
stock is a swing
dollar
in theisnt
that stock price.
hiring more employees, ramping up marketing, acquiring a
competitor, developing a new product, or otherwise investing that
money to grow the business.
Companies spend a lot of money buying up shares and then cut
their dividend as a result, since the company has less cash to hand
out in dividends. So if youre an investor who relies on dividend
checks for income, this could hit you in the pocketbook.
The rise in stock price may help the stock hit a target price the
managers need to exercise their options, which can dilute the value
Leverage Recapitalization
In a leveraged recap, firms announce a debt issuance and one-time
distribution of extraordinary dividends simultaneously and where the
distribution is material and is executed over a short period.
Unlocks value to shareholders.

Provides liquidity for the funds investment without losing control
or the ability to capture the benefit of the companys future sales
and earnings growth.
Cash flow savings from the tax shield attributable to the tax
deductibility of interest payments on the newly issued debt
Dividends are not tax deductible, and moreover the investors will
have to pay personal taxes over the dividends received
May leave it without the ability to adequately fund day-to-day
working capital needs and may impair future growth opportunities
or the ability to respond to and weather unanticipated business
downturns
Future debt issuance will suffer a higher cost of financing because
the amount od debt had increased
LBO
A leveraged buyout or LBO is a type of aggressive business practice
wherebyinvestorsor a larger corporation utilizes borrowed funds (junk
bonds, traditional bank loans, etc.) or debt to finance its acquisition..
Usually PE companies can offer the highest price to the company

Massive restructuring of the company
The large interest payments force the company's management
team to increase operating efficiency.
The LBO can create a valuabletax shelterfor the target company,
because interest expenses are tax deductible.
No need to publish information
There is a dilution/loss of ownership stake for current investors

Different perceptions of value to the target firm and PE firm
Cost-cutting measures my hurt the business and reputation of the
company
High costs and time expenditure in due dilligence
High risk of bankruptcy given the large amount of debt
It can lead to hostile takeovers.
Sale to a strategic buyer
Strategic buyers, companies already in similar lines of business, are
focused on enhancing their existing business model and the resulting
financial return to their shareholders from the purchase of the target
company.
May provide highest valuation for shareholders in the near term
May enable the entrepreneur to completely walk away (i.e. obtain
the greatest liquidity)
Potential operating synergies can improve the business
Typically, strategic buyers are very knowledgeable from an
operational and business perspective, facilitating due diligence and
closing; may be able to close much faster
Qualified buyers may not be constrained by financing contingencies
or be at the mercy of the credit markets
Management may lose autonomy, lose their jobs, or have their

rolesdiminished
Possible negative impact on culture and morale
May affect customer loyalty
Upside value potential may be sacrificed (unless there is significant
stock or earnout consideration)
Key concern is being caught up in bureaucratic delay
decisionparalysis
A secondary concern is related to access to competitive information,
Agenda
Executive Summary
Industry Overview
Brinks Company
Activists
Valuation
Value Created by Spin-ofs
Spin-offs Just like M&A, but the other way around...
M&A deals are carried under the belief that the combination of the two entities
may generate a new entity whose value is greater than the sum-of-the-parts
Spin-offs are carried out when a firm believes that its overall value would
increase separately (sum-of-the-parts > combined firm)
From as investors point of view, one advantage brought about by a spin-off
is the ability to manage separately their exposure to different businesses
May not fit their investment policy thus lowering the initial price when
selling
There is empirical evidence that both mother company and spun-of one, on
average, increase in value after separation
How do they create value to shareholders?
Straightforward method to redeem the value embedded eliminate
conglomerate discount
Increase of business/management focus restructuring opportunities
Variable compensation more linked to the units performance
Efficiency boost of the spun off unit more close supervision by shareholder of
top management
Asymmetry of information between the conglomerates management team
and the market
Seems a good solution to manage agency issues
Value Created by Spin-ofs
So, why conglomerates still exists?

Crate value by exploiting synergies between the units they are made up
of
What valuation could be expect at each company?
Since the company operates in 2 different businesses, we should do a
sum-of-the-parts valuation
value them separately (value them differently or give them
weights)
Based on publicly traded Based on precedent transaction
companies It may involves minorities, in
These are multiples of other words, control
comparable prices (on the premium
stock) The market timing may
reflect transactions affect the multiples used,
without control (net of which may drive to
every
Brinks Inc. control
and BHS mayeffect) misleading
require different valuations results
as separate
companies, given the discrepancy in M&A deals and trading multiples for
these businesses
Agenda
Executive Summary
Industry Overview
Brinks Company
Activists
Valuation
Valuation |
Publicly Traded Companies
Valuation |
Publicly Traded Companies
This valuation is based on 2006 and 2007 figures Assuming the

The conglomerate multiples were weighted based on weighted average
of all security
EBITDA companies
Clear evidence of a conglomerate discount multiples based on
Sum-of-the-Parts have an implied multiple slightly > EBITDA weights
Conglomerate fair value
It seems that, in fact, there is a discount over the conglomerate and
therefore the Sum-of-the-Parts is higher than Conglomerate market value
Valuation Publicly Traded Companies
From a Bottom-Up analysis, the BCO is trading at lower multiples than the
industry...
Note the multiples among the two Vs

businesses are different and security
services seem to have higher multiples. .
Then, we believe this is based on the
industry fundamental and what is
relevant to see which business if
dragging the valuation down is the
comparison of the implied multiple for
each unit with the median and/or
average of the relevant peers
... It seems that the main responsible, quantitatively, appears to be BHS

given that is trading way below industry multiples in both years
Valuation Precedent Transactions
Only transactions after
2003 were considered,
due to:
Potential impact of
the Dot-Com Bubble
on transaction
multiples
Market Timing
Industry Median Multiples
were chosen to perform
the sum-of-the-parts
valuation given its lower
sensitivity to outliers
The monitoring industry
transaction multiples
seem to reflect some
control premium
However, in the
security services
multiples may imply
some sort of
discount...
Once again it is shown that the company is being undervalued

Agenda
Executive Summary
Industry Overview
Brinks Company
Activists
Valuation
Given the trend of consolidation within Security Services,
BCOs businesses are diferent in many ways and it would be
more efficiently run separately
Even with some drawbacks, We believe that there is only
such as access and cost of few synergies that do not offset
capital to sponsor expansion the discount
growth, perceived different Different geographic
without the Brinks brand footprints
association (or Royalties fees) Different skillset required
Gains could be taken from a tax-free spin-on

Through the valuations performed, the split-up in two companies
may be worth $80 to $85 per share
An increase between 30 to 40%
Securitas stock increased 21% from on month prior to the
split
Concluding, and after looking to other potential exit

strategies, we believe the spin-of route to be the most
appropriate one
Thank you for your attention.
April 20th 2015
Nova School of Business and Economics

Brink's Company: Activists Push For A Spin-Off

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Brink's Company: Activists Push For A Spin-Off

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Brinks Company: Activists push

Nova School of Business and Economics

Issues being target my activists

Brinks is undervalued by the Markets

Value created by Spin-ofs

Issues being target my activists

Brinks is undervalued by the Markets

Value created by Spin-ofs

The decision of performing a spin-off follows pressure on the company

Nevertheless we have to bear in mind that Brinks Company is made of

Issues being target my activists

Brinks is undervalued by the Markets

Value created by Spin-ofs

Globally United States

Primary factors in attracting

High quality and reliable

Market for Electronic Security System

I. II. III. IV. V.

$30 billion globally where US accounted for nearly US Rest of

Company Service and Product Pric

Market for Electronic Security System

Factors driving industry growth

Heightened Increase in dual

Growth in home and commercial security system

Issues being target my activists

Brinks is undervalued by the Markets

Value created by Spin-ofs

Brinks was founded in Chicago on May

Issues being target my activists

Brinks is undervalued by the Markets

Value created by Spin-ofs

There are few synergies between unrelated business;

The extra layers of management needed, compared to

The complexity of a conglomerates' accounts can make

Why do conglomerated typically trade below

Issues being target my activists

Brinks is undervalued by the Markets

Value created by Spin-ofs

Activist investor: An individual or group that purchases large

Private Investment Fund run by

U.S.-based hedge fund was

How do activists expect to make money?

Activists shareholders try to be active on firms management, in

Issues being target my activists

Brinks is undervalued by the Markets

Value created by Spin-ofs

Brinks was trading as much as 35 % below its intrinsic value.

MMI Investments Recommendations

April December July

Pirate Capital Recommendations

August January August

Steel Partners LLC Recommendations

Issues being target my activists

Brinks is undervalued by the Markets

Value created by Spin-ofs

Key Valuation drivers that may not have

Decreasing former operations expenditures

Aggressive BHS growth

Other explainable reasons for Brinks

Other explainable reasons for

Activist Shareholders demands

Issues being target my activists