Updated Dec. 7, 6 p.m.
The United States solid waste operation of Veolia Environmental Services, among the largest in the nation, is up for sale.
Paris-based Veolia Environnement said it plans to Sell Veolia ES Solid Waste Inc. as part of a massive restructuring plan to raise $6.7 billion for reducing debt.
Veolia Environmental Services North America (VESNA), based in Chicago, will retain its two other business units, Veolia ES Technical Solutions and Veolia ES Industrial Services. VESNA also will keep its Canadian solid waste business.
VESNA ranked third on the Waste Age 100 with 2010 revenue of $1.9 billion and about 10,000 employees. The U.S. solid waste operations include 29 landfills, 72 collection operations, 17 recycling facilities and 43 transfer stations, most east of the Mississippi River.
“These divestiture plans are in support of [Veolia Environmental’s] existing program to pay down debt and increase cash flow, which has been in place since 2009 and was expanded earlier this year,” said Richard Burke, President and chief executive officer for VESNA, in a news release. “Our solid waste business is self-sustaining, profitable and highly marketable, and its sale will make a significant contribution to the financial well-being of Veolia globally. As the company seeks a buyer, we will continue with business as usual.”
In addition to its U.S. operations, Veolia plans to sell its 50-percent stake in the French transportation division Veolia Transdev, which is co-owned French state-owned financial institution Caisse des Dépôts et Consignations, and its regulated water business in the United Kingdom, the company said in its Paris-based news release.
Proceeds from all asset sales will mainly be used to pay down debt. The company said it expects to reduce debt below $16.1 billion by the end of 2013. “This transformation will provide the means to significantly improve the company’s financial flexibility,” Veolia said.
Michael Hoffman, director of research at Wunderlich Securities Inc., said the sale had been rumored for some time. “I’m surprised only to the degree that it’s very profitable and generates good cash flow,” he says in an interview.
“My sense is that they’re selling because they’re not gong to be No. 3 or No. 4; they’ll be No. 5,” he continues. “Being big is not a good strategy. Being big in a local market is a great strategy. They’ve got a really good footprint. They’re big in the right way.”
Hoffman says Veolia should get a nice price for the U.S. operations, possibly $1.4 billion or more. Subtract $600 million for debt and Veolia should end up with at least $800 million in cash from the deal.
Hoffman says the announcement indicates that Veolia is putting the business up for auction, and that could hamper a deal with the most logical buyer. “The natural buyer is Waste Management, but if you do an auction it will limit their ability to play,” he says. An auction likely would drive the price up. “How can Waste Management get in an auction and not have the stock market rip their head off? But maybe that is a drink they’d be willing to swallow.” For one, it would bring Waste Management landfills in the Midwest that would fill a void.
Hoffman doubts Republic Services Inc. would be a buyer, since many of Veolia’s operations once belonged to Republic until they had to divest them with the Allied Waste Industries Inc. purchase in 2008. Waste Connections Inc. could do it, but it might not make sense strategically, Hoffman says.
Selling the U.S. operations all at once is the ideal strategy, he says, but “it might have more value [selling] piecemeal, if you’re willing to take the time to do it.”
It also could be sold partly with cash and partly with an equity position in the buyer, which could be attractive to Veolia, he says.