Pirate says Brink's should sell

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Sunday, October 1, 2006

NORWALK, Conn.--At about $57 per share, The Brink's Company stock is trading close to its 52-week high and is up $20 since mid-August 2005, but Pirate Capital, a hedge fund here, says shareholders still aren't getting the booty they deserve.
Thomas R. Hudson, managing member of Pirate Capital, which owns 8.7 percent of Brink's stock, on Aug. 8 sent a letter to Brink's board of directors advising the company to sell.
The letter credits the board and chairman with "creating significant shareholder value," but goes on to say "BCO shares have yet to be awarded a multiple that reflects the company's value as a pure-play security company with an attractive balance sheet and strong growth prospects."
Hudson said the "expected purchase price in the range of $68 - $72 per share ... could prove conservative."
Zachary George, the analyst in charge at Pirate, did not return a call requesting comment.
Pirate, which is a $1.7 billion fund, has successfully pressured companies to sell in the past. In August, Pirate helped orchestrate a $2.8 billion buy-out of ski resort company Intrawest. Pirate owns 18 percent of Intrawest's stock and last winter urged the company to sell.
Some in the security industry, however, believe that Pirate may now be attempting to plunder the wrong ship.
Jack Mallon, managing director of investment bank Mallon Associates, acknowledged Pirate's past successes, but said, "I think we have here a hedge fund that is anxious to maximize their return and pressuring for a sale on the faulty assumption that there is a buyer out there prepared to pay a premium price."
Noting the current stock price and its consistent improvement over the last year, Mallon said, "It's not like Brink's is a distressed, undervalued entity ... It's selling at 3.5 times book and at 20 times forward PE rate."
Since shedding its freight delivery business, BAX, last winter, Brink's has two divisions, Brink's Home Security and Brink's Armored Trucking. Mallon said two major global players, Brink's and Loomis Fargo, have 50 percent of the armored trucking business, and Loomis "has been on the block for the past six months and it has had no takers."
"It's apparent that private equity players have not been able or willing to make a deal and, as a matter of fact, this type of operation, namely armored trucking and money processing, is an extremely high-risk endeavor and not the type of investment that a private equity player would normally take."
There is a ready market, Mallon said, for Brink's alarm operation, "but that's a smaller piece of the overall security operation and if you sell that off, what do you do with the armored trucking business?"
Michael Dan, chairman, president and chief executive officer of The Brink's Company, on August 9 sent a letter to Pirate Capital, saying that the hedge fund's suggestions had been brought to the attention of the board of directors and that "we appreciate the recognition you expressed of the board's creation of significant shareholder value."
Ed Cunningham, director of investor relations and corporate communications for The Brink's Company said, "They're a major shareholder and we respect their views and the board will certainly consider them." Asked when they will consider Pirate's letter, Cunningham said it is the company's long-standing policy not to announce the meeting dates of its board of directors.