From Players to Partners

Melanie A. Lasoff

With all its recent acquisitions - U.S. Filter, Warren, N.J., and the hazardous waste operations of Waste Management Inc., Houston - Paris-based Vivendi, which also owns Montenay International, Miami, is fast securing its place in the U.S. solid waste market. Its North American waste management subsidiary, Onyx-North America, Miami, purchased Superior Services Inc., Milwaukee, in June for nearly $1 billion.

Superior's 49 waste collection operations, 23 landfills, 20 transfer stations and 15 recycling plants have made Onyx a stronger player in the Midwest, Northeast and Southeast.

Recently, both Onyx and Superior told Waste Age in an exclusive interview that they see the acquisition as a major step forward for their companies. Here's what Len Enriquez, vice president of Onyx, and Bill Dietrich, president and CEO of Superior Services, had to say.

WA: Is Vivendi a nationally focused solid waste company, as opposed to Superior, which is a regional operator?

Len Enriquez (LE): Onyx certainly is nationally focused with $1 billion in annual revenues, 6,500 employees (including Superior) for waste services activities in North America, and a coast-to-coast presence in solid, liquid, and hazardous waste services. Superior, which has $400 million in annual revenues, more than 2,200 employees and a presence in 12 states, obviously is a major addition to Onyx's North American continent-wide focus.

WA: What is Vivendi's acquisition strategy? What types of operations, landfills, haulers, etc., and in what parts of the country is Vivendi interested?

LE: Our basic strategy calls for being able to offer waste services from collection to final recycling or disposal, as well as a full horizontal (solid, liquid, hazardous) range of waste services to our clients.

With respect to geography, we will prioritize locations for growth where we already have critical mass or where a major industrial or municipal client is identified. Although we now have some level of presence in most states, we are not trying to be everywhere. We feel the assets we have, including Superior, will serve as essential platforms for small to medium "tuck-in" acquisitions. Additional large- or medium-sized platform acquisitions would be considered on a case-by-case basis.

WA: Why is Vivendi expanding into the U.S. marketplace now?

LE: When you are one of the three largest solid waste companies in the world, it is difficult to imagine staying out of North America, which is the world's largest market with some 30 percent of the world's economic activity.

Our large-scale entry into the market was made possible by the financial flexibility that Vivendi created by following a disciplined strategy over the last few years. This strategy consisted of selling off non-core businesses and reinvesting the proceeds into core businesses. Vivendi generated some $15 billion from the sale of non-core businesses, and more than $10 billion of that now has been invested in North American acquisitions of core businesses.

WA: What advantages does Vivendi bring to the U.S. market?

LE: We feel that Onyx-North America and Vivendi bring a number of unique advantages to the U.S. market, including: the ability to offer the full range of waste/environmental management services; a long presence (since 1978) in waste services in the United States and Canada, with consequent familiarity with the specifics of these markets; a corporate culture developed originally in the European context, which stresses an extremely high level of service and value to the customer together with some of the tightest environmental standards in the world; and the substantial resources of Onyx as the third largest waste services company in the world after Allied/BFI and WMI, with nearly $4 billion in annual revenues.

WA: If Vivendi is joining other bidders, such as Waste Management Inc. and Allied Waste/Browing Ferris Industries Inc. (Allied/BFI), will that drive up the price of these acquisitions?

LE: Allied and WMI's acquisition activities going forward appear to be significantly limited by antitrust concerns in numerous individual markets. In addition, the number of acquisition players has decreased through consolidation. As a result, it could be expected that acquisition prices might level off or even decline.

WA: Considering the numbers of solid waste operations already acquired in recent years, do you see many attractive companies left to buy?

LE: With perhaps 5,000 smaller privately held companies and a handful of medium to large publicly traded companies still independent and active in the solid waste market, there still are ample opportunities for further acquisitions. We would like to stress that we do not pursue growth for growth's sake. We do look at each candidate in light of strict operational and financial criteria.

WA: How do the acquisitions of Superior, U.S. Filter and Waste Management's hazardous waste operations combined with Montenay International, fit into Vivendi's overall solid waste plan?

LE: These acquisitions demonstrate Vivendi's commitment to our strategy of offering a full range of waste/environmental management services. Our plan is to offer and provide these services in an integrated fashion, especially to our industrial clients. We have successfully provided such integrated services to automotive and other manufacturing clients in Europe, Australia and Asia, and we are sure that our industrial clients here will be interested in the same type of services.

WA: What made Superior an attractive company to acquire?

LE: Superior is impressive because of its proven record of profitability, the management team's qualifications and aggressive growth orientation, and the highly disciplined growth around the hub and spoke model, as demonstrated by one of the highest tonnage internalization percentages in the industry. The "hub and spoke" model refers to when a solid waste company goes into a new market, it establishes a disposal "hub," usually by acquiring one of the larger collection companies. Then, the company adds smaller hauling companies around it, the "spokes." To determine the tonnage internalization percentage, we measure the tonnage disposed at a company's own landfills divided by the total tonnage collected by that same company.

WA: Len has told us why Vivendi wanted to acquire your company. What advantages does Superior gain through this acquisition?

Bill Dietrich (BD): This alliance with Vivendi is the most advantageous method to continue the growth and development of our company. At the same time, it provides a very attractive premium to our shareholders.

WA: What advantages do you think Vivendi brings to the U.S. market?

BD: This transaction will allow us to take advantage of the synergies available with Vivendi's existing assets in the United States, including those recently acquired from Waste Management Inc. It also will enable us to expand the services provided by our special services operations to a broader base of commercial and industrial customers. We also will be able to accelerate our aggressive acquisition program in both new and existing markets.

WA: What differences will the average Superior employees notice with new owners?

BD: One of the reasons we found this opportunity so attractive was the stability it offers our employees. We expect no changes at the operating level. We will continue to operate our business as usual, with the same employees, the same local managements and the same decentralized approach to managing our operations.

WA: Will Superior customers notice any differences?

BD: Customers should notice no change as a result of the acquisition. We will continue to focus our efforts on providing our customers with the best possible service at a fair price. Customer contracts will remain with Superior Services and its subsidiaries. They will not be assigned or transferred.

WA: How similar is the Vivendi's corporate culture to Superior's?

BD: This was a major consideration in our negotiations with Vivendi. Superior and Vivendi share the same corporate values and high standards for ethical business conduct. This includes an appreciation for our employees, a sense of social responsibility and a commitment to the preservation of the environment.

WA: How long do you anticipate the acquisition process to take?

BD: The tender offer commenced on June 18 and expired at midnight Eastern Standard Time on July 16. It was completed successfully on that date. We have filed a Notification and Report Form under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. The waiting period expired with no issue on July 14. The back-end of the transaction may take several months to complete, depending on when we receive the regulatory permits. However, we do not expect any problems in obtaining the various regulatory consents and approvals required.