Done Deal

The sale of Veolia ES Solid Waste Inc. to Advanced Disposal Services Inc. is complete, after the Justice Department ordered some divestments that one securities analyst believes will not have any major impact on the newly enlarged company.

The Jacksonville, Fla.-based Advanced Disposal purchased Veolia’s U.S. solid waste operations for $1.91 billion. The deal creates the largest privately owned waste and recycling firm in the United States with revenue of about $1.4 billion.

“A transaction of this magnitude takes time and significant efforts from all parties.  I am extremely grateful to the teams from both Advanced Disposal and Veolia who contributed countless hours to make this strategic combination a reality,” said Charlie Appleby, chairman and CEO of Advanced Disposal, in a news release.

The decision came a week after the U.S. Department of Justice required Star Atlantic Waste Holdings L.P. a unit of New York-based Highstar Capital and owner of Advanced Disposal, to agree to divest Veolia operations, including commercial waste collection or disposal assets in northern New Jersey, central Georgia, and the Macon, Ga., metropolitan area before the acquisition of Veolia could go forward.

The Washington-based Justice Department said in a news release that Star Atlantic along with Veolia ES must make the divestments because the transaction would have resulted in higher prices for municipal solid waste (MSW) collection from commercial businesses or the disposal of waste in these areas.

Under the proposed settlement, Star Atlantic and Veolia will 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 metropolitan area.

“I don’t think they’re making them sell anything that changes the quality of the business,” says Michael Hoffman, director of research for Wunderlich Securities Inc., in an interview. He sees a handful of prospective buyers interested in the New Jersey assets, and one in Taylor County, Ga., as well. “I suspect there’s very logical people to look at the list in New Jersey, both public and private.”

The Veolia deal closed Nov. 20. Advanced has 90 days to make the divestments. “They’ll hit the 90-day deadline with no difficulties,” Hoffman says.

With the closing of the sale, Hoffman says the initial focus will be getting the three primary hauling businesses – Veolia, Advanced Disposal and Interstate Waste Services Inc. – integrated under one platform on matters such as accounting, dispatch and billing.

That can be challenging with any major acquisition, but Advanced Disposal is well-positioned, Hoffman believes. “You’ve got the benefit of a management team that’s run a really big business (Veolia with Richard Burke, who now serves as Advanced Disposal’s president). I suspect what will happen is the best of Advanced and/or Veolia becomes the platform choice for billing, etc. You’ll take the best of each,” he says.

Hoffman says he wouldn’t be surprised if ultimately more of that comes from Veolia than Advanced Disposal or Interstate Waste, just because Veolia is bigger.

It should take Advanced Disposal about six to nine months to integrate the operations. It should happen smoothly because it won’t be subject to shareholder pressures of a publicly held company, and there is not a lot of overlap in operations. “It’s mostly about back-office matters, and then having a strategy going forward.”

That strategy, Hoffman says, is greatly affected by the larger economic issues going on now, particularly with regard to how capital gains taxes are affected. “A lot of people are trying to get deals done by end of year, including in the garbage industry.”

He says Chicago-area hauler Groot Industries Inc. and Kansas City, Kan.-based Deffenbaugh Industries Inc. are two companies that could be acquisition targets for Advanced Disposal or another firm. There also are a lot of little companies in the New York City metropolitan area that could beef up the Interstate Waste business. “There’s a lot of [potential] things for them to do.”

Advanced Disposal now has strong positions in the Southeast and Midwest, and a presence in the Northeast. But there’s a gap in company operations in the mid-Atlantic. “Is there an opportunity to build that out?” Hoffman asked.