WM + Advanced Disposal: A Closer Look at the New Deal

The Waste Management (WM) team announced some revisions to its blockbuster deal to acquire Advanced Disposal Services (ADSW).

After more than a year without approval, a revised deal has finally been made public. The new deal will lower the price of the transaction and reduce the assets Waste Management will own once the deal is finalized. 

A peek into the new deal

Initially, Waste Management struck a deal to acquire Advanced Disposal for $33.15 per share. This valued the company's equity at around $3 billion, plus net debt of $1.9 billion took the purchase price to $4.9 billion. Due to changing economic conditions, and assumed pressure from regulators, Waste Management was forced to modify the deal. Regulators at the U.S. Department of Justice (DOJ) pushed for Waste Management to divest assets generating around $300 million worth of revenue that the company was willing to acquire as part of the buyout of Advanced Disposal.

To abide by this DOJ request, Waste Management agreed to sell off assets worth around $835 million to GFL Environmental (GFL). The assets GFL is acquiring include solid waste collection, transfer, and landfill assets that last year brought in sales of $345 million. Specifically, it includes 32 collection operations, 36 transfer stations, and 18 landfills, all located across 10 U.S. states. It also includes more than 350 vehicles and employs more than 900 workers. 51 percent of revenue by region will come from the U.S. 

According to the revised terms of the deal, the company will now acquire Advanced Disposal in exchange for $30.30 per unit. This values the firm's equity at $2.73 billion, about $260 million lower than the prior deal. Net debt of $1.84 billion brings the total deal value up to about $4.57 billion on an enterprise value (EV) basis.

How does Waste Management fare?

If Waste Management can generate the $100 million in synergies that it is projecting, it could create additional value for the business and its shareholders. 

Adding $100 million to the bottom line for Waste Management would make many investors agree that the purchase of Advanced Disposal was worth the price. 

It seems that these changes were prudent on the part of Waste Management. The sale of the assets to GFL will help bring down the cost of the transaction, as will the renegotiated sale price. 

“We continue to be excited by the compelling strategic rationale and financial benefits of the Advanced Disposal acquisition,” said Jim Fish, President and Chief Executive Officer of Waste Management. “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,” said Richard Burke, Chief Executive Officer of Advanced Disposal. “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 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, cash flow and  continue a commitment to outstanding customer service and sustainable waste solutions.