Canada-based waste management companies IESI-BFC Ltd. (BIN, BIN.TO) and Waste Services, Inc. (WSII) said Wednesday that they have agreed to merge, creating North America's third-largest solid waste management company. The merged entity will be headquartered in Toronto and will trade under the symbol "BIN" on the New York as well as Toronto stock exchanges. Following completion of the transaction, Keith Carrigan, currently IESI-BFC's vice Chairman and chief executive officer, will assume the same roles at the combined company.
Under the terms of the definitive merger deal, IESI-BFC will issue 27.8 million common shares to shareholders of Waste Services, representing about 23% ownership in the combined company. Shareholders of Waste Services, or WSI, will get 0.5833 common shares of IESI-BFC for each WSI common share that they hold.
Based on the closing stock prices of both companies on Tuesday, November 10, the deal represents a premium of approximately 27% over the volume weighted average closing price of WSI's shares for the previous 30 trading days of US$6.10. The companies will have thirty days from Wednesday to complete due diligence and obtain fairness opinions. The transaction is anticipated to close in the first calendar quarter of 2010.
The acquisition will combine IESI-BFC's and WSI's collection, transfer, recycling and landfill businesses. The combined company, with expected pro forma annual revenues of nearly US$1.5 billion, will have more than 6,000 employees serving commercial, industrial and residential customers in eleven U.S. states and the District of Columbia, as well as in six Canadian provinces.
The transaction is expected to add to IESI-BFC's earnings and free cash flow per share in the first year following closing, and generate US$25 million-US$30 million in net pre-tax annual run rate synergies by the end of the second year following closing.
The newly-formed company will use its excess free cash flow to fund organic growth, maintain IESI-BFC's regular quarterly dividend payments to shareholders, finance accretive strategic acquisitions and reduce debt.
The companies said they expect shareholders in the merged entity will receive the regular C$0.125 quarterly dividend per share currently enjoyed by IESI-BFC shareholders.
In connection with the transaction, IESI-BFC will utilize a part of its available credit capacity of US$435 million as of September 30, 2009, and will increase the size of its Canadian revolving credit facility to about C$450 million from C$305 million. IESI-BFC noted that the existing debt of its U.S. revolving credit facility will remain outstanding immediately after closing of the deal.
As part of the deal, Burlington, Canada-based WSI will have the right to nominate two members of the board of directors of the combined company. WSI's largest shareholders, Westbury Bermuda Ltd., which owns 12.61 million shares, and Kelso & Company, L.P., the owner of 2.89 million shares, have each signed a voting agreement in support of the deal.
Commenting on the deal, Keith Carrigan, Vice Chairman and Chief Executive Officer of IESI-BFC said, "In uniting with WSI, IESI-BFC will advance to a top-three position in the North American solid waste management industry. More importantly, this transaction will allow our two companies to grow more meaningfully than they could on their own. Through this combination, we will increase our internalization in the Canadian market, where we have demonstrated our ability to improve margins by applying our highly successful business model."
David Sutherland-Yoest, President and Chief Executive Officer of WSI, said, "The transaction with IESI-BFC will enable WSI to execute its operating and growth strategies more effectively and participate in the enhanced profitability of the combined entity, while continuing to provide our customers with the top-notch service they have come to expect. IESI-BFC has a robust asset base in Canada, the U.S. Northeast and the U.S. South, a history of margin expansion, and a strong balance sheet. Its regular quarterly dividend, which the combined company expects to maintain, will serve as a source of additional return to our shareholders."
In late October, IESI-BFC reported an increase in net income for the third quarter to US$19.1 million, from US$16.3 million in the year-ago quarter. However, on a per share basis, net income declined to US$0.20 from US$0.24 in the same period last year. Revenue for the quarter declined to US$268.4 million from US$282.2 million in the year-ago period.
Meanwhile, WSI reported an increase in net income for the third quarter to $6.7 million or $0.15 per share from $3.5 million or $0.08 per share in the prior-year quarter. Revenues for the quarter declined to $112.5 million from $125.7 million in the same quarter last year.
BIN closed Tuesday's regular trading session on the NYSE at US$13.31, up US$0.10 on a volume of 19 thousand shares. The stock has been trading in a range of US$10.92-US$14.19 in the past 52 weeks.
On the Toronto Stock Exchange, BIN.TO closed Tuesday's regular trading session at C$13.96, up C$0.01 on a volume of 0.30 million shares. The stock has been trading in a range of C$7.50-C$14.94 in the past 52 weeks.
WSII closed Tuesday's regular trading session on the Nasdaq at US$7.24, down $0.22 on a volume of 0.24 million shares. In the 52-week period, the stock has been trading in a range of US$3.87-US$7.68.
For comments and feedback: editorial@rttnews.com