Treasure Chest: Pirate Capital's Largest Holding, BCO
I always scan SEC filings of my favorite hedge funds to see whats happening in their universe. Recently, I have taken note of Pirate Capital's largest holding, Brinks Co. Here is a snapshot of Brinks:
Brinks Co. (ticker symbol: BCO) - Pirate currently holds more than 3.9 million shares (8.15% of the firm) in this mid-cap securities services firm. The Brink's Company provides security services worldwide. It offers armored car transportation; automated teller machine replenishment/servicing; currency and deposit processing; coin sorting and wrapping; secure air transportation of valuables; deployment and servicing of safes and safe control devices; and transporting, sorting, and destroying of sensitive information. The company also provides security services, including marketing, selling, installing, servicing, and monitoring of electronic security systems in owner occupied, single family residences, and in commercial locations.
In 2005, BCO had more the $2.5 billion in sales. In their most recent quarter, the firm reported sales of $720.6 million which is an increase of approximately 11% from last year's same quarter number of $651.3 million. All of the firm's divisions posted gains and were led by the secure transportation and cash management unit. However, Pirate Capital feels that the firm is drastically undervalued.
Last month, Pirate Capital portfolio manager Thomas Hudson, Jr. sent a letter to BCO management requesting that they move toward hiring an investment banker to seek sale alternatives. In other words, sell the firm to the highest bidder. Here is his letter as filed with the SEC:
November 21, 2006
VIA FACSIMILE & OVERNIGHT COURIER
Board of Directors
C/o Mr. Michael T. Dan
Chairman, President and Chief Executive Officer
The Brink's Company
1801 Bayberry Court
Richmond, Virginia 23226-8100
Dear Members of the Board:
Pirate Capital LLC, as the investment advisor to Jolly Roger Fund LP, Jolly
Roger Offshore Fund LTD and Jolly Roger Activist Portfolio Company LTD, is the
beneficial owner of approximately 4.1 million shares of the common stock of The
Brink's Company ("BCO" or the "Company"). As a long-term investor and as one of
the largest shareholders, we have urged BCO to maximize shareholder value by
retaining an investment bank to explore the sale of the Company. This request
has not been met and instead, based on management's posturing on the most recent
investor call, BCO appears to be pursuing an acquisition. We are concerned that
shareholder propositions are falling upon deaf ears.
Despite BCO's two premier security businesses, the Company has yet to be awarded
a deserving multiple. While we applaud the Board's successful strategic
initiatives, we believe that BCO remains an undervalued and underleveraged
company. We have urged BCO to engage an investment bank to explore the sale of
the Company, and we further call on the Company to immediately pursue a
substantial second Dutch tender offer for its stock. If the Board agrees that
BCO shares are undervalued then it is an opportune time to initiate a Dutch
tender. If the shares continue to trade at an unwarranted discount, we believe
substantial value will be realized through competitive bidding and the sale
process. We are confident that our proposals will unlock significant shareholder
value as evidenced by the success of the sale of BAX Global and the first Dutch
tender offer. Unfortunately, we have seen no progress towards the fulfillment of
these shareholder initiatives.
As one of the largest shareholders, we believe it is in the best interest of all
investors to have a significant shareholder presence on the Board in order to
ensure that shareholder objectives are properly deliberated. Accordingly, Pirate
Capital hereby requests that I be appointed to the Board immediately. We note
that the current Board and executive officers as a group beneficially owns only
approximately 2.1% of the BCO shares. Pirate Capital beneficially owns
approximately 8.5% of the BCO shares, or over four times as much as the combined
amount owned by the Board and executive officers. We believe that a Board seat
designated to Pirate Capital will substantially enhance the quality of the Board
by providing considerable shareholder interest at the Board level.
If the Company neglects to grant me a Board seat, I intend to run for election
at the upcoming annual meeting. Pirate Capital also intends to submit a formal
shareholder proposal, requesting that BCO retain an investment bank to explore
strategic alternatives, including the sale of the Company and a large Dutch
tender offer for the Company's stock. We have had meaningful conversations with
investment bankers and are highly confident that a number of financial and
strategic buyers would be interested in acquiring the Company at a considerable
premium to the current stock price. We look forward to working with the Board to
unlock significant shareholder value.
Sincerely,
/s/ Thomas R. Hudson Jr.
Thomas R. Hudson Jr.
Manager
Since writing this letter, the shares of BCO have accelerated from $55.21 (Nov 21) to a 52-week-high of $65.00 per share. My question: how much could BCO fetch if placed on the selling block? Pirate previously stated that firm is worth $68-$72 per share, based on a valuation of 8.5x-9.0x its 2006 EBITDA estimate. Later this week, I will take apart the firm's financials to determine what may be deemed as fair value of the firm using consensus earnings estimates. So stay tuned!
