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Biffa directors agree £1.2bn takeover bid

Biffa’s directors issued a statement to the stock exchange this morning to recommend the Montagu/GIP bid of 350 pence per share, which values the company at £1,231 million.

The management of waste firm Biffa has strongly recommended a £1.2 billion takeover of the company by a partnership of two equity companies, Montagu and Global Infrastructure Partners (GIP).

But, Biffa is still vulnerable to bids from other companies and finance houses. Four names are being mentioned by sources within the City – CVC, Macquarie Corporation, Suez – the owner of SITA UK – and Veolia Environmental Services.

Montagu/GIP

Biffa's landfill activities, such as this site at Redhill in Surrey, are driving its profits
Biffa’s landfill activities, such as this site at Redhill in Surrey, are driving its profits

Advised by Citi, JP Morgan and Tricorn Partners, Biffa’s directors said they consider the offer to be “fair and reasonable”. They told shareholders the deal will be in their best interests, and unanimously agreed to recommend the acquisition at an extraordinary general meeting expected to be held in March. Martin Bettington, chief executive of Biffa, is due to step down in March, although there is some speculation his term of office could be extended to oversee the sale.

If the acquisition is approved, the acquisition could take place by the end of April 2008, said Biffa’s statement. The process now is that with Biffa’s management selling their shares to the proposed deal, the documents are now sent out to other Biffa shareholders ahead of the EGM.

City sources suggest that if other bids are put forward, these are likely to come within the next four weeks, although Montagu and GIP have an advantage as they have completed the due diligence procedure.

Bob Davies, non-executive chairman of Biffa said: “We are pleased to have reached agreement with Montagu Private Equity and GIP. Their offer recognises considerable value inherent in our market position and integrated business model, and I believe their investment plans will help Biffa maximise the opportunities presented by changing legislation to deliver growth into the medium term.”

The recommended bid for Biffa is being supported by UCIL, a holding company of the bank HBOS, which has a 14% stake in the bid company. Montagu and GIP are putting £306 million into the bid, while UCIL is investing £100 million.

A further £1,090 million in finance for the deal will come from a consortium of banks including Bank of Scotland Corporate; Barclays Capital, the investment banking division of Barclays Bank PLC; Credit Suisse, London Branch; HSBC Bank plc and The Royal Bank of Scotland plc.

Biffa

Montagu and GIP are buying a company with over 450 national and 75,000 local industrial and commercial customers.

Demerged from water company Seven Trent in October 2006, Biffa is the second largest landfill company in the UK with 33 landfill sites and has 42 treatment and recycling centres across the UK.

The company’s turnover for the year ended March 30, 2007, was £742.7 million and profit was £90.7 million. In the 26-week period ended September 28, 2007, Biffa’s revenue and operating profit were £395.0 million and £52.4 million respectively, the company reported.

At the same time as today’s announcement on the bid, analysts noted that Biffa has issued a brief statement on its current trading performance since September 2007. It said Biffa had been making good progress but as had happened in the first half of the financial year, it suggested the collection side of the business was not going as well as hoped, and that the profits were coming from the recovery and landfill activities.

It is understood that the commercial and industrial side of the business is also under particular pressure at the moment.

Bidders

Montagu, which has previously had dealings in the waste industry with its ownership of Cory Environmental from 2005 to 2007, said it had been attracted to Biffa by its “great workforce”, and stressed its intention for the acquisition to be a “long-term” investment.

Jason Gatenby of Montagu said: “We are delighted that the Board of Biffa has unanimously agreed to recommend our proposed acquisition of Biffa. Both the Montagu Funds and GIP Funds are long-term investors and together we look forward to building on Biffa’s leading position across all areas of the waste management value chain. Biffa meets the criteria we look for in a business: it is a market leading business with a great workforce in a sector we understand well and where we have a demonstrable track record of success.”

GIP, an equity fund backed by US energy giant General Electric, which owns London City Airport among other projects, said the Biffa deal represented an “attractive opportunity” to establish itself in the UK waste industry.

Matthew Harris of GIP said: “We believe that waste management represents a critical infrastructure service and that the future prospects across the industry in the UK are exciting. Along with our experienced partner Montagu Private Equity, we look forward to working with Biffa’s management to build on the solid customer franchise and market position that Biffa enjoys today.”

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