The solid waste industry’s No. 3 and No. 4 haulers, Waste Connections Inc. and Progressive Waste Solutions Ltd., are merging to form a $4.1 billion company.
The all-stock, reverse merger transaction provides an implied exchange ratio of 0.4815 of a share of Waste Connections stock for each share of Progressive Waste stock. Waste Connections stockholders will receive 2.076843 shares of Progressive Waste stock for each share of Waste Connections stock they own. Based on Friday's closing price of $24.55 per share, that puts the deal's value at about $2.7 billion.
When the deal is completed Waste Connections shareholders will own about 70 percent of the combined company, and Progressive Waste shareholders will own about 30 percent, according to a news release.
Both boards have approved the deal, which they expect to close in the second quarter. Shareholders for both companies have to approve the deal.
The transaction value represents about a 16-percent premium to Progressive Waste’s 20-day volume-weighted average stock price prior to Progressive’s Jan. 4 announcement that it was reviewing its strategic alternatives.
Upon closing, the combined company will use the Waste Connections name, with expectations that its shares will trade on both the New York and Toronto stock exchanges.
The combined company will be led by Waste Connections’ current management team. The new board of directors will include five current Waste Connections board members and two members from Progressive Waste’s board.
In conjunction with the merger announcement, Progressive said, effective immediately, Dan Pio, executive vice president, strategy and business development, has been appointed Chief Integration Officer. Additionally, William (Bill) Herman, vice president and chief accounting officer, has been appointed executive vice president and interim CFO; and Loreto Grimaldi, senior vice president, general counsel and secretary, has been appointed executive vice president and chief legal officer. Kevin Walbridge, executive vice president and COO, and Ian Kidson, executive vice president and CFO, have stepped down to pursue other opportunities.
It is anticipated that, as the integration period progresses Joseph Quarin will step down from the role of president and CEO of Progressive Waste to pursue other opportunities.
Upon completion of the deal, the combined company will be domiciled in Canada. It will maintain headquarters in The Woodlands, Texas (Waste Connections’ headquarters) and Canadian operation headquarters in Toronto (Progressive Waste is based in Vaughan, Ontario).
“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,” said Ronald Mittelstaedt, Waste Connections chairman and CEO. “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 said he expects the combined company to either divest or swap assets within certain U.S. markets. He believes 85-90 percent of Progressive Waste’s revenue “is consistent with our differentiated tenets.”
“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 under way, building upon our fourth quarter financial and operational performance,” Quarin said in a statement.
Added James Forese, chairman of Progressive Waste’s board of directors, “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. 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 companies identified the main strategic and financial benefits of the transaction. With pro forma revenue of about $4.1 billion, the move brings an integrated network of solid waste operations across North America.
It combines two companies that have delivered strong organic growth within the industry. Waste Connections is in mostly secondary and exclusive U.S. markets, while Progressive has a strong position in Canada and complementary U.S. markets, particularly in its commercial services line.
The combined company expects to generate about $50 million in selling, general and administrative (SG&A) cost savings within the first 12 months after closing. Operational and safety-related improvements and market rationalization will contribute additional savings long-term.
And the company’s financial profile should remain strong, as the all-stock transaction should remain at about 3x debt to earnings before interest, taxes, depreciation and amortization (EBITDA).
St. Louis-based Stifel, Nicolaus & Co. Inc. served as advisor to Waste Connections on the deal. In their report on the transaction, it said the deal’s valuation comes in at less than 8 times, and with additional synergies, it could be down to 7.3 times in a couple of years.
The Stifel report, led by Managing Director Michael E. Hoffman, said that in regard to Waste Connections keeping all the assets: “We suspect over time (Waste Connections) would entertain some divestments of markets that do not suit its overall strategy. We estimate these select markets could account for 5 percent to 10 percent of the combined sales.”
In the most recent Waste 100, Waste Connections was fifth at $2.08 billion in revenue, and Progressive Waste was sixth with slightly more than $2 billion in revenue. Ahead of them at No. 3 was hazardous waste firm Clean Harbors Inc. and medical waste firm Stericycle Inc. at No. 4.
Progresssive Waste in early January responded to a Bloomberg report that it was exploring a sale after cutting its profit forecast because of rising costs. Bloomberg reported that the firm has reached out to potential buyers, but talks are preliminary and the company may decide against pursuing a sale.
In response, Progressive issued a release saying it "has commenced a review of strategic alternatives with the objective of enhancing shareholder value."
The firms also released a joint presentation to shareholders explaining the deal. It is embedded below.