The Motley Fool

Amcor and Brambles set to prove breaking up is good for you

The recent announcements by blue chip industrial firms Amcor (ASX: AMC) and Brambles (ASX: BXB) that they plan to undertake demergers is most likely a positive development for shareholders.

In July, having previous failed to sell its document storage division Recall, Brambles announced its intentions to demerge Recall and create a separately listed company. Recall has been the laggard within the Brambles group, but it is still a substantial business in its own right. Recall has operations in 23 countries, annual revenues of around US$800 million and underlying profits of US$144 million.

The timetable for demerger is on schedule, with Brambles aiming to complete the demerger by the end of December 2013.

Packaging giant Amcor followed suit in August, also announcing its intention to pursue a demerger of its Amcor Australasia and Packaging Distribution (AAPD) business from the wider Amcor group. The basis for the demerger was stated by the CEO as a need to “be focused in terms of product portfolio and end markets.” Like Recall, the business is significant in its own right. AAPD has operations in seven countries and sales in FY 2012 of $2.8 billion.

The next step for the AAPD demerger is for a shareholder vote to be conducted in early December.

While every demerger of course needs to be considered on its own merits, there are a number of examples of demergers creating significant value for shareholders

Boral (ASX: BLD) and Origin Energy (ASX: ORG) demergered in 2000 and as can be seen from the chart below (data available from 2003), 1 share received in both Boral and Origin has significantly outperformed the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO).

demerge1

Source: Google Finance

Likewise the recent demerger of Twenty-First Century Fox (ASX: FOX) from News Corp (ASX: NWS) has so far proved to be value accretive to shareholders as well, as the chart below highlights.

demerge2

Source: Google Finance

Foolish takeaway

With the Amcor and Brambles demergers only a matter of weeks away, there is not necessarily a need for investors to rush out and buy the stocks pre-demerger. In fact it is quite possible that there will be even better buying opportunities in the days and weeks post-demerger. However now is the time to be analysing the businesses and be alert to the potential opportunities.

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Motley Fool contributor Tim McArthur owns shares in Twenty-First Century Fox and Origin Energy.

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