BRAMBLES' THORNY ISSUES

Australia's most sizeable deal to date, which completed in June, saw US buyout firm Kohlberg Kravis Roberts part with A$1.83 billion ($1.35 billion; €1.04 billion) for two subsidiaries of industrial group Brambles, one focused on waste management and the other on logistics. At the time there was much talk of KKR having paid an aggressive price in order to chalk up its first deal on Australian soil. It has since emerged that at least one rival bidder for the assets is upset at not being allowed to pay more.

CHAMP Private Equity, a Sydney-based buyout house, bid unsuccessfully alongside trade partner Transpacific Industries, a listed Australian waste management group. A source close to CHAMP told sister website PrivateEquityOnline.com (PEO) that it had expected to participate in a final round of negotiations, which in the event never materialised. Two other parties were also involved in the latter stages of the auction: buyout house CCMP Capital with trade partner Tenix Group, and a joint bid from private equity firms CVC and Ironbridge Capital.

The CHAMP source confided to PEO: “We were told there was a “locked box” of information that hadn't yet been provided, which we believed would be opened to two or three bidders in the final week of negotiations. We were very confident that we'd get a call from UBS inviting us back to further talks, but instead they went straight into exclusivity with KKR.”

The role of UBS is seen as pivotal to developments. As well as being financial adviser to Brambles on the deal, the Swiss bank offered a staple financing package to those competing for the assets. The source at CHAMP suggested to PEO that its exclusion from a further round of bidding may have been linked to CHAMP and Transpacific's decision to decline the financing – which KKR, by contrast, accepted.

The source added that if CHAMP and Transpacific had been allowed into a final round, they would have submitted a bid of at least A$1.85 billion. Addressing claims that there was conditionality attaching to the bid, the source said that any such conditions would have been dropped in the final round if they had become crucial to the bid's success.

That's not how everyone sees it. In a statement announcing the deal on its website on 19 June, Brambles chief executive David Turner said: “KKR clearly made the best overall offer – a good price and, importantly, a very clean sale able to be speedily completed and with no conditions precedent.”

Asked to elaborate by PEO, a spokesperson for Brambles said the comments had made the firm's position “very clear” and it did “not feel the need to comment any further”. However, it may now be forced to open up a little more. Given the furore emanating from the deal, regulatory body The Australian Securities and Investment Commission (ASIC) has launched an investigation into the circumstances surrounding it.

Australian lawyers say ASIC has recently made it a priority to look at whether financial institutions have in place adequate arrangements to manage conflicts of interest. Just such an examination led to ASIC's recent decision to file civil penalty proceedings against Citigroup, which acted as adviser to Australian logistics firm Toll Holdings on its $4.6 billion takeover bid for rival Patrick Corporation, which completed in July this year. ASIC ruled that Citigroup had engaged in proprietary trading in Toll's stock alongside its advisory role and had, as a result, failed to put adequate arrangements in place to manage conflicts between its own interests and those of Toll.

There is no suggestion at this point that UBS similarly overstepped the line with Brambles. However, the possibility of a conflict of interest between its financing and advisory roles is something that lawyers say will likely form part of the investigation.

Whatever conclusions are finally drawn, an issue that arises from the Brambles sale – the ramifications of which could extend globally – is whether the auction process, with its emphasis on maintaining competitive tension, produces unrealistic expectations that the highest priced bid will always win. Reportedly around A$1 million lighter in the pocket after six months of expensive preparatory work on Brambles, CHAMP and Transpacific may have learnt the harsh lesson that price isn't necessarily everything.