Waste Management Inc., Houston, and Advanced Disposal Services Inc., Ponte Vedra, Florida, announced on June 24 that they have amended the terms of the definitive agreement under which a subsidiary of Waste Management will acquire all outstanding shares of Advanced Disposal for $30.30 per share in cash, representing a total enterprise value of $4.6 billion when including approximately $1.8 billion of Advanced Disposal’s net debt.
This marks a lower bid than was originally announced. Waste Management previously stated that it had agreed to acquire all outstanding shares of Advanced Disposal for $33.15 per share in cash, representing a total enterprise value of $4.9 billion when including approximately $1.9 billion of Advanced Disposal’s net debt.
The blockbuster deal, which was originally announced in April 2019, was nearing its July 13 termination date.
As part of the deal, Waste Management and Advanced Disposal also announced that they have entered into an agreement for GFL Environmental, Ontario, Canada, to acquire a combination of Advanced Disposal and Waste Management assets for $835 million, representing approximately $345 million in total revenue based on 2019 results. Approximately $300 million of the total revenue is related to assets and businesses being sold to GFL Environmental to address substantially all of the divestitures expected to be required by the U.S. Department of Justice. As with the Advanced Disposal acquisition, the sale of assets to GFL Environmental remains subject to clearance from the U.S. Department of Justice and is also conditioned on the closing of Waste Management’s acquisition of Advanced Disposal.
“We continue to be excited by the compelling strategic rationale and financial benefits of the Advanced Disposal acquisition,” Jim Fish, president and CEO of Waste Management, says. “Over the last several months, as we have worked to gain regulatory approval from the U.S. Department of Justice, we have become increasingly convinced that the people and customer additions this acquisition brings to Waste Management will be of tremendous value and we are confident that Waste Management’s operational excellence will allow us to achieve expected synergies. In addition, we are pleased to have reached an agreement with GFL Environmental for substantially all of the divestitures anticipated to be required by the U.S. Department of Justice at a valuation that appropriately reflects the high-quality nature of the Advanced Disposal and Waste Management assets to be sold. Today’s announcement positions us to move forward with collective focus on satisfying the U.S. Department of Justice review process and successfully completing both transactions.”
“We believe the revised agreement with Waste Management, coupled with our joint agreement to sell substantially all of the divestitures to GFL Environmental, delivers significant value and certainty of closing to Advanced Disposal stockholders,” Richard Burke, CEO of Advanced Disposal, says. “We continue to work hand in hand with the Waste Management team, GFL Environmental and the U.S. Department of Justice to gain regulatory clearance and complete the transaction.”
Waste Management says that it expects the Advanced Disposal acquisition to advance its growth strategy and align with its financial goals, including strong returns on invested capital and growth in earnings per share, margins and cash flow. Specifically, Waste Management says in a release that it expects the acquisition of Advanced Disposal to:
- Expand Waste Management’s talent, footprint and customer base. According to Waste Management, “This acquisition brings together high-quality, complementary teams, asset networks and customers under Waste Management’s proven leadership. Waste Management has a strong commitment to people and customers and a track record of operational excellence that will continue to provide world-class service to an expanded customer base.”
- Create Synergies and grow Waste Management’s earnings and cash flows. Having completed significant additional diligence, Waste Management says it expects annual cost and capital expenditure synergies to exceed the $100 million previously announced. Waste Management continues to expect near-term benefits to be driven by core operating performance and SG&A cost savings, with long-term margin expansion and improved free cash flow conversion from network optimization, operating and capital efficiencies and an improved cost of capital.
- Support Waste Management’s capital allocation priorities. The Advanced Disposal acquisition will enhance Waste Management’s cash flow growth and support its commitment to deliver strong shareholder returns.
- Continue a commitment to customer service and sustainable waste solutions. According to Waste Management, “The acquisition will join two teams of dedicated employees who are passionate about helping to manage the environmental needs of customers and communities with outstanding service and a commitment to safety. Waste Management expects to continue making investments in employees, technology and capital equipment to further grow the business, and ensure superior, reliable customer service.”
Timing and approvals
The Advanced Disposal acquisition, which was unanimously approved by the boards of directors of both companies, is expected to close by the end of the third quarter, subject to the satisfaction of customary closing conditions, including regulatory approvals and approval of the amended definitive agreement by a majority of the holders of Advanced Disposal’s outstanding common shares. Canada Pension Plan Investment Board, which owns approximately 18 percent of Advanced Disposal’s outstanding shares, has entered into an amended and restated voting agreement whereby it has agreed under the terms of the agreement to vote its shares in favor of the amended transaction. Waste Management, Advanced Disposal and GFL Environmental say they are continuing to work cooperatively with the U.S. Department of Justice to obtain necessary regulatory clearance. Waste Management and Advanced Disposal say they are pleased with the progress that has been made to date and believe they are on track to receive final regulatory approval in a timeframe that is complementary to the expected completion of the Advanced Disposal shareholder vote by the end of the third quarter. The amendment to the definitive agreement also modifies certain closing conditions and termination provisions, including an extension of the deadline to complete the transaction and a $250 million termination fee payable by Waste Management to Advanced Disposal if the closing does not occur in certain circumstances when such clearance has not been obtained.
Waste Management says it is well-positioned to fund the transaction, with its strong balance sheet, significant free cash flow generation, investment-grade credit rating and favorable access to capital markets. As a result of the updated transaction timing, Waste Management expects that its outstanding senior notes issued in May 2019 with a special mandatory redemption feature will be redeemed pursuant to their terms.
Waste Management currently anticipates funding the transaction using a combination of credit facilities and commercial paper but is evaluating other longer-term financing options. Following completion of the acquisition, Waste Management says it expects to maintain a strong balance sheet and solid investment-grade credit profile with a pro forma leverage ratio well within Waste Management’s revolving credit facility financial covenant. Waste Management currently has more $3 billion of available capacity under that credit facility.
In connection with the ongoing review of the transaction by the U.S. Department of Justice, Waste Management and Advanced Disposal entered into an agreement for GFL Environmental to acquire certain assets. This divestiture transaction is also expected to close by the end of the third quarter and remains subject to customary closing conditions including regulatory approval and the closing of Waste Management’s acquisition of Advanced Disposal. The agreement with GFL Environmental addresses substantially all of the divestitures anticipated to be required by the U.S. Department of Justice, but the U.S. Department of Justice has not yet approved the transaction and continues its review in coordination with Waste Management, Advanced Disposal and GFL Environmental.
Centerview Partners LLC, New York City, is serving as the exclusive financial advisor to Waste Management, and Simpson Thacher & Bartlett LLP, New York City, and Vedder Price P.C., Chicago, are serving as Waste Management’s legal counsel. UBS Investment Bank, Zurich, is serving as the exclusive financial advisor to Advanced Disposal, and Shearman & Sterling LLP, New York City, and Mayer Brown LLP, Chicago, are serving as Advanced Disposal’s legal counsel.