Bunzl faces pressure over buybacks and North America split

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Bunzl and North America split

Highlights

Elliott Management urges Bunzl to resume buybacks worth about £800 million over the next year, totaling nearly a tenth of outstanding shares.
A North American business separation, generating over half of Bunzl’s sales, could unlock value approaching £7 billion—about two-thirds of Bunzl’s enterprise value.
Implementing aggressive buybacks would lift Bunzl’s net debt to three times EBITDA, significantly curbing its capacity for future acquisitions.

Investor proposals and capital allocation

As reported by Financial Times, Elliott Management wants Bunzl to restart its buyback programme and repurchase up to about a tenth of its shares over the next year, arguing the current valuation offers an opportunity. The activist investor is also pressing the group to separate its North American business, which generates a little more than half of sales, with a potential sale as one option.

Bunzl’s recent market weakness gives some weight to that argument, after the company posts one of the FTSE 100’s worst share price performances last year and becomes the first index constituent in five years to stop a share buyback programme. Yet the company is not sitting on excess cash, having raised its dividend for 33 consecutive years and spent more than £6 billion on nearly 250 acquisitions over the past two decades.

If Bunzl spends another roughly £800 million on buybacks next year, its net debt would rise to around three times EBITDA, according to Lex calculations in the source text. That would leave the group with much less room for further acquisitions, which have historically provided most of its growth.

Why Bunzl may resist activist treatment

The pace of acquisitions is slowing, with last year’s total running at about half the level of the previous two years, but that alone does not necessarily justify shifting Bunzl toward a utility-style model focused on cash returns. Until last April, the company had outperformed the FTSE 100 over a decade, albeit narrowly, exceeding the index’s annualised total return of 6 per cent.

A separation of the North American business could also unlock value on paper. Using forecast operating profit of £430 million and valuation multiples similar to U.S. peers of about 16 times, that division could be worth nearly £7 billion, or about two-thirds of Bunzl’s current enterprise value, though such a move could reduce the benefits of global sourcing across the wider group.

The debate reflects a broader UK market trend in which activists and private equity target undervalued, low-profile companies, including Intertek and Whitbread. Even so, Bunzl still appears to be a less obvious candidate for a breakup or aggressive balance sheet engineering, given its long record of durable returns from a steady distribution business.

Our earlier article on Yum! Brands’ split sale of Pizza Hut described how the company agreed to dispose of the business in two geographic transactions, separating mainland China from the rest of the chain. We noted the deal’s mechanics—including expected net proceeds and one-off separation costs—and how the carve-up was positioned as a way to sharpen focus and unlock value after an extended period of weak performance.

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