2012 was an eventful year for the solid waste and recycling industry. A new giant emerged with the sale of Veolia’s U.S. solid waste operations. The primary trade association for the business got its first new leader in almost two decades. Private sector haulers won a major victory in the long-running legal battle over the flow of waste. And the industry’s two largest companies underwent major restructurings while the industry as a whole suffered some financial headwinds late in the year.
A New Kingpin
Investment firm Highstar Capital moved into the top 10 North American waste and recycling firms with its acquisition of Veolia’s U.S. solid waste operations for $1.91 billion.
The long-anticipated sale in July of Veolia ES Solid Waste Inc. by Chicago-based Veolia Environmental Services North America Corp. (VESNA) created the largest privately held waste and recycling business in the United States, with estimated revenues of $1.4 billion. That would place New York-based Highstar at No. 8 on the Waste Age 100 list of largest solid waste and recycling firms.
Christopher Lee, Highstar founder and managing partner, said in a statement when the acquisition was announced that it was “a unique opportunity to create a fully-integrated environmental services platform across the eastern United States. The combined business will be a best-in-class company with an exceptional management team and growth opportunities.”
The deal closed in November shortly after receiving approval from the Department of Justice with the stipulation of certain divestments. Highstar has to divest commercial waste collection or disposal assets in northern New Jersey and central Georgia because the department said the deal would have substantially reduced competition in those areas. Specifically, Highstar unit Star Atlantic Waste Holdings LP must divest three specified transfer stations in northern New Jersey; a landfill and two transfer stations in central Georgia; and three commercial waste collection routes in the Macon, Ga., metropolitan area.
Highstar also owns Jacksonville, Fla.-based Advanced Disposal Services Inc. and Interstate Waste Services Inc. of Basking Ridge, N.J. The two companies, along with Veolia, will operate as one company, Advanced Disposal Services.
The combined business includes 47 landfills, 92 transfer stations, 1.8 million residential customers, more than 3,000 trucks and 5,450 employees serving 20 states.
While the deal was awaiting final approval Advanced Disposal also named a new management team to direct the company. The primary new team is: Wally Hall, chief operating officer; Richard Burke, president; and Steven Carn, chief financial officer.
Hall has been chief operating officer of Advanced Disposal, Burke was CEO of VESNA and Carn has been responsible for all aspects of finance with Advanced Disposal. “We have worked diligently since the announcement of our agreement to acquire Veolia to plan for the effective combination and integration of three great companies – Veolia, Interstate and Advanced Disposal,” said Charlie Appleby, chairman and CEO of Advanced Disposal, in a statement announcing the new management team.
At the time of this writing, the new, larger Advanced Disposal was still reviewing options for its headquarters. In addition to its current home base of Jacksonville, Advanced is considering Atlanta, Milwaukee and Charlotte, N.C. All four cities have offered incentive packages to attract the firm.
According to the Jacksonville proposal, the consolidation of the three companies would retain 35 current headquarters employees and add 85 new jobs that would pay an average of $112,209 plus benefits. The legislative fact sheet also stated that Advanced Disposal proposes to invest $8.2 million in leasehold improvements, machinery, equipment, furniture and technology infrastructure.
The fact sheet stated that Milwaukee has move-in ready space. Both Charlotte and Atlanta offer a centralized location for efficient travel.
“The company will make a decision regarding its corporate headquarters that is in the best business and financial interest of the company,” said Mary O’Brien, chief marketing officer for Advanced Disposal, in an e-mail.
The sale does not affect VESNA’s two other U.S. business units, Veolia ES Technical Solutions and Veolia ES Industrial Services. VESNA said it also keeps its Canadian solid waste business.
Waste and Recycling Keep Flowing
Private waste haulers gained a major victory in 2012 with a federal court rejecting the city of Dallas’ effort to control the flow of its waste to a city landfill.
In October the U.S. District Court for the Northern District of Dallas granted a permanent injunction request by the National Solid Wastes Management Association (NSWMA) and several haulers, determining that the city did violate the Contract Clause of the U.S. Constitution as well as Texas state law and the Dallas city charter with the law it passed in September 2011 directing Dallas waste to go to the city’s McCommas Bluff landfill.
The court determined that the city enacted the law for economic gain “at the expense of the franchisees’ rights. This is an unreasonable exercise of its police powers,” the court said in its ruling.
“NSWMA is very gratified by the district court’s decision in this case,” said Sharon Kneiss, NSWMA president and CEO, in a news release. “Our efforts – especially those of NSWMA’s Texas chapter – demonstrate NSWMA will not hesitate to protect the rights of its members and our industry and promote free enterprise.”
“This decision is a significant victory of solid waste industry in general and for our members in Texas in particular,” said David Biderman, general counsel and director, safety, in an interview.
Biderman says it was significant that Judge Reed O’Connor not only upheld the NSWMA claim on the U.S. Constitutional issue, but on two other claims as well. The law violated vested rights for franchisees under the Texas’ due course of law provision. And it violated the city’s charter by not providing haulers with an opportunity for a fair hearing.
Chris Bowers, Dallas assistant city attorney, said in a statement, “The city remains committed to implementing an effective and sustainable long range solid waste plan. Such plan includes the expanded use of emerging technologies and renewable energy sources, and the commitment to increases in recycling and re-uses alternatives. … The city is disappointed in the district court’s decision and will assess its appellate options.”
In late November Dallas filed a motion for a new trial. The city also filed objections to the plaintiffs’ bill of costs, or paying the attorney fees in the case. The court set Jan. 21 as the new deadline for response on the motions, according to court records.
In the motion the city’s argument for a new trial it claimed the court did not follow the rule of constitutional avoidance, or resolving the case on non-constitutional grounds if possible. The court did not give proper deference to the city’s democratically elected legislature. It improperly enjoins criminal prosecution in state court. And it improperly identifies the applicable dates and parties for the injunctive relief, according to the city’s filing.
“We are reviewing Dallas’ latest filing in the case and will respond at the appropriate time,” Biderman said in an e-mail response to the latest development.
The NSWMA expressed confidence that the decision won’t be overturned. “We expect this decision to not only be upheld if an appeal is filed, but also to deter other local governments from unlawfully implementing flow control laws,” said Tom Brown, chairman of NSWMA’s Texas chapter and senior vice president and chief operating officer at Progressive Waste Solutions Ltd., in a statement.
“The fact that the judge had more than one reason for ruling it invalid makes a potential appeal by the city of Dallas that much more challenging,” Biderman says. While he doesn’t know what the city’s intentions are, “I’m hopeful that the city officials will recognize that the path they chose was unlawful and will not continue to pursue this case. It has been going for nearly a year now; hopefully it won’t go on any further.”
The Silver Spring, Md.-based Solid Waste Association of North America (SWANA) in a statement reaffirmed that flow control can be an effective method of municipal solid waste management. “This decision in no way undermines the constitutional right of local governments to enact ordinances to require haulers to deliver locally generated solid waste to publicly owned transfer or disposal facilities, “ said John Skinner, SWANA executive director, in a statement. “The Dallas decision does emphasize that when local governments institute flow control ordinances they need to be vigilant in observing state and local legal requirements and existing franchise agreements.”
“This decision demonstrates the importance of an strong trade association for the sold waste and recycling industry in these challenging economic times.” Biderman says. “Local governments are creatively seeking to increase revenue associated with solid waste and recycling activities. NSWMA and its members will continue to vigilantly oppose such efforts and will not hesitate to protect the rights of its members in court.”
In January the court had issued a preliminary injunction against the Dallas law. Besides NSWMA, other parties filing the complaint were Bluebonnet Waste Control Inc., IESI TX Corp., Republic Waste Services of Texas Ltd., Allied Waste System Inc., Camelt Landfill TX LP, Waste Management of Texas Inc., WM Recycle America LLC and Businesses Against Flow Control.
A New EIA Era
The industry’s largest trade association underwent a changing of the guard this year. The Environmental Industry Associations (EIA) named Sharon Kneiss as its new president and CEO in April, and she officially took the reins in July from Bruce Parker. Parker, the long-time popular leader of the association, announced his retirement the previous November.
Kneiss was chosen by a four-person search committee led by EIA Chariman Charlie Appleby of Advanced Disposal. With the executive recruiting firm Association Strategies Inc. of Alexandria, Va., and other methods the EIA gathered more than 150 applications and eventually narrowed the field to six candidates. The search committee interviewed those six, determined two finalists and eventually chose Kneiss, catching many by surprise.
“At the final stage, it was a pretty easy decision,” Appleby said in an interview. “Either [of the two finalists] would have been a fine CEO. I don’t think we could have failed with either one. We picked the one the board thought would do the best job for us.”
Kneiss came to EIA with more than 30 years of business, management and advocacy experience regarding environmental policy at the federal and state levels. She served as vice president, products division, with the American Chemistry Council (ACC).
Prior to ACC, Kneiss worked in management at the American Forest & Paper Association, and in policy advocacy roles at Chevron Corp., Hercules Inc. and the American Petroleum Institute.
Kneiss received a bachelor of science in chemistry from the University of Scranton and a Master of Business Administration from the University of Pittsburgh.
“The solid waste and recycling industry, including its equipment manufacturers, provides a vital service that impacts each and every person and business in this country,” Appleby said in statement announcing the decision. “The needs of our customers and the development of new technologies are changing at light speed. We knew we needed someone who can readily grasp the impact of those changes and navigate the halls of Washington and the various states, as well as respond to the needs of our membership. I am confident that we found that person in Ms. Kneiss.”
In her first in-depth industry interview, Kneiss told Waste Age two areas of emphasis for her will be communication and recycling.
“One of the best messages for this organization is its work on recycling,” Kneiss said. “I think recycling is such an important area. The greater visibility we can give the industry, I think that will serve them very well.”
One of Kneiss’ first moves was to embark upon a listening tour of the industry. “There’s a real opportunity to listen and learn and get a broad view of this industry,” she said at the outset.
But the industry also had its share of hiccups in 2012. In July Houston-based Waste Management Inc. said it was restructuring its operations to cut costs, reducing management layers and eliminating about 700 jobs. Then in early November Phoenix-based Republic Services Inc. did the same, reducing its number of territories and cutting staff. And in August, Rutland, Vt.-based Casella Waste Systems Inc. restructured its operations to eliminate $6.5 million of annual costs.
Waste Management said its reorganization was designed to focus on the company’s three major initiatives: yield management, improving efficiency in operations and getting better at meeting customers’ needs. The move flattened the company’s management structure and removed about 100 basis points of costs.
In addition to eliminating 700 positions, Waste Management decided to remove the management layer of four geographic groups; consolidate and reduce the number of areas managing the core collection, disposal and recycling businesses to 17 from 22; and reduce corporate support staff in order to better align their work with the needs of the operating units, while reducing costs.
“The steps we are taking to restructure our organization are expected to provide two very important results for us,” said David Steiner, Waste Management president and CEO, in a statement. “First, the restructuring is expected to reduce our cost structure by about 100 basis points in 2013. This is a good step toward our longer-term goal to reduce costs by 200 to 400 basis points. Second, we believe that eliminating a layer of management and restructuring our support staff around our three major initiatives will intensify our focus on achieving those initiatives.”
Meanwhile, Republic cut its number of organizational regions to three from four, and organizational areas to 20 from 28. The company said it is reducing administrative staffing levels but did not say how many employees would be laid off. It also is reallocating office space.
Republic expects the restructuring to reduce selling, general and administrative expenses by about $23 million annually. “We implemented this realignment to leverage our strong leadership team and organizational capabilities to refine how we operate,” said Don Slager, Republic president and CEO, in a statement. “We have not made any changes to the span of control at our business units, keeping the appropriate leadership focus and decision making closest to our customers.”
Casella said its realignment includes enhancing parts of sales functions to improve customer service and retention, pricing growth and support of strategic growth initiatives; streamlining operations support to better align transportation, route management and maintenance functions at the local level; and reducing corporate overhead and staff.
The realignment builds upon the steps Casella has taken during the past 12 months to adjust its costs while still maintaining its focus on its main strategic growth objectives, the company said in a statement.
The restructurings were reflected in financial results as well. Both Waste Management and Republic’s most recent, third-quarter earnings showed declines of 21 percent in net income. Casella’s loss grew in its fiscal first quarter.
Waste Management anticipated a third quarter pre-tax charge to earnings of $50 million to $60 million, primarily related to employee separation costs. The amount doesn’t include potential additional charges for facility shutdowns or consolidations. Republic expects to record expenses of approximately $30 million from the restructuring, approximately half of which will be incurred in the fourth quarter. Casella expects to take a charge of approximately $1.5 million in its second quarter.
But restructurings weren’t the only factors hurting waste and recycling companies financially this year. Commodity prices slumped and had a significant negative impact on those companies and Progressive Waste Solutions Ltd. as well. Progressive reported its net earnings in the most recent quarter falling nearly as much as Waste Management and Republic.
Clean Harbors Inc. also reported a sharp drop in earnings in its recent quarter. But net profits rose for Waste Connections Inc. and Stericycle Inc.
Allan Gerlat is News Editor for Waste Age and waste360.com.