Waste Connections and Progressive Waste Solutions to merge

Waste Connections and Progressive Waste Solutions to merge

Combined company will generate $4.1 billion in revenue and operate an integrated network of solid waste operations across North America.

January 19, 2016

Waste Connections Inc., headquartered in The Woodlands, Texas, and Progressive Waste Solutions Ltd., headquartered in Toronto, have entered into a definitive agreement to merge in an all-stock transaction. When the transaction is completed, Waste Connections stockholders will own approximately 70 percent of the combined company, while Progressive Waste shareholders will own approximately 30 percent. Both companies’ boards of directors have unanimously approved the transaction, which is expected to close in the second quarter of 2016, the companies say in a joint news release issued Jan. 19, 2016. Upon closing, the combined company will use the Waste Connections name and its shares likely will trade on the New York Stock Exchange and the Toronto Stock Exchange, according to the news release.

Upon completion of the merger, which is expected to be in the second quarter of 2016, the combined company will be led by Waste Connections' current management team, and the board of directors will include the five current members of Waste Connections' board and two members from Progressive Waste's current board.

Progressive Waste Solutions Ltd. also announced that, effective immediately, Dan Pio, executive vice president, strategy and business development, has been appointed chief integration officer in connection with the company's proposed combination with Waste Connections. Additionally, William (Bill) Herman, vice president and chief accounting officer, has been appointed executive vice president and interim chief financial officer; and Loreto Grimaldi, senior vice president, general counsel and secretary, has been appointed executive vice president and chief legal officer.

Progressive’s Kevin Walbridge, executive vice president and chief operating officer, and Ian Kidson, executive vice president and chief financial officer, have stepped down from the company to pursue other opportunities.

Herman will oversee Progressive Waste Solutions' accounting functions and financial controls during the integration period, while Grimaldi will oversee the completion of the merger transaction, including the satisfaction of all closing conditions.

The combined company will maintain headquarters in The Woodlands and Canadian operating headquarters in Toronto and will be domiciled in Canada.

Waste Connections, founded in 1997, is an integrated solid waste services company that provides waste collection, transfer, disposal and recycling services in mostly exclusive and secondary markets. It is the  Through its R360 Environmental Solutions subsidiary, Waste Connections also provides nonhazardous oilfield waste treatment, recovery and disposal services in several of the most active natural resource producing areas in the United States, including the Permian, Bakken and Eagle Ford Basins. Waste Connections serves more than 2 million residential, commercial, industrial and exploration and production customers from a network of operations in 32 states. The company also provides intermodal services for the movement of cargo and solid waste containers in the Pacific Northwest.

Progressive Waste Solutions Ltd. provides nonhazardous solid waste collection, recycling and disposal services to commercial, industrial, municipal and residential customers in 14 U.S. states and the District of Columbia and six Canadian provinces. The company has vertically integrated collection and disposal assets.

The transaction was negotiated on the basis of an implied exchange ratio of 0.4815 of a share of Waste Connections for each share of Progressive Waste. As a result of the transaction structure, Waste Connections stockholders will receive 2.076843 shares of Progressive Waste stock (1/0.4815) for each share of Waste Connections stock they own. The transaction value represents nearly a 16 percent premium to Progressive Waste's 20-day volume-weighted average stock price prior to the announcement Jan. 4, 2016, that it was engaged in a review of strategic alternatives.

"We are extremely excited to welcome Progressive Waste into the Waste Connections family and believe the combination will be quite compelling to our collective employees, shareholders and other stakeholders," says Ronald J. Mittelstaedt, CEO and chairman of Waste Connections.

"Under our leadership, we believe we can instill the corporate culture, safety focus, operational excellence and accountability that have served us so well and which we believe are necessary for long-term success within Progressive Waste's complementary markets,” he continues.

“In addition, to maintain our strategic market differentiation and drive further value creation, we expect to either divest or swap assets within certain U.S. markets as we believe between 85 percent and 90 percent of Progressive Waste's revenue is consistent with our differentiated tenets,” Mittelstaedt says, adding that the merger should drive further growth and increase shareholders’ returns.

"We welcome Progressive Waste's talented employees and recognize their significant value to the customers and communities they serve,” he says. “They have been critical to their company's performance and growth and will continue to contribute to the combined company's success."

Joseph Quarin, president and CEO of Progressive Waste, says, "Combining Progressive Waste and Waste Connections makes compelling strategic and financial sense, and the all-stock nature of the transaction provides Progressive Waste shareholders with the opportunity to participate in the significant near- and long-term upside potential of the combination.

“We believe this combination will accelerate the improvements already underway, building upon our fourth quarter financial and operational performance. Importantly, employees will benefit from new opportunities for growth and development as part of a larger company committed to customer service, operational excellence, safety and employee engagement,” he continues. “We look forward to a bright future for our employees and enhanced service for our customers as a result of this transaction."

James J. Forese, chairman of Progressive Waste's board of directors, says, "Having conducted a review of the strategic options available to the company, the Special Committee and board concluded that this transaction is in the best interest of Progressive Waste and enhances value for our shareholders.”

He adds, “Together with Waste Connections and its leadership team, we create a new industry leader that is well positioned to serve a diverse base of customers across North America and capitalize on an expanded set of growth opportunities to generate substantial value for shareholders."

The combination of Waste Connections and Progressive Waste is consistent with the companies’ strategic goals and will create a company with greater scale and a stronger financial profile, the news release states.

Following completion of the transaction, Waste Connections will have pro forma revenue of approximately $4.1 billion and operate an integrated network of solid waste operations across North America. “The transaction brings together vertically integrated and complementary asset bases under Waste Connections' disciplined market selection and safety-focused operational model,” according to the news release.  

The combination of Waste Connections' differentiated position in mostly secondary and exclusive U.S. markets with Progressive Waste's strong position in Canada and complementary U.S. markets, particularly in its commercial services line, will result in a high quality of revenue, margin and free cash flow, according to the companies.

The merger is expected to generate approximately $50 million in annualized SG&A (selling, general and administrative expenses) cost savings within the first 12 months after closing, according to the companies, with operational and safety-related improvements and market rationalization contributing additional benefits over the long-term. Tax-effected synergies, capex discipline and other factors should result in more than $625 million of adjusted free cash flow for the combined company in its first year, or more than 20 percent accretive on a free cash flow per share basis, the companies speculate.

Because it is an all-stock transaction, leverage for the combined company should remain at approximately three times debt to EBITDA (earnings before interest, taxes, depreciation and amortization) upon completion of the transaction, Progressive Waste and Waste Connections say. “This attractive credit profile, combined with sector-leading conversion of EBITDA to free cash flow, provides not only a strong financial foundation for our employees and communities, but also the ability to further enhance shareholder returns through additional growth opportunities and share repurchases,” they add.

The free cash flow characteristics of the combined company support the continued payment of a quarterly dividend to shareholders, the news release states. The dividend policy of the combined company will be subject to review by the board of the combined entity upon closing of the transaction. Until the close of the transaction, both companies say they intend to continue to pay their respective quarterly dividends.

The transaction is subject to customary closing conditions, including the approval of both companies' shareholders, U.S. antitrust approval and the approval of the Toronto Stock Exchange. The consummation of the combination transaction is not conditioned upon Progressive Waste shareholder approval of the share consolidation.