The venture by the local authority was completed on 5 March and is described by the city council as an “arm’s length commercial investment”. The council hopes to profit with an ongoing revenue stream from the purchase and the prudential borrowing route means the council pays a lower rate than it would be likely to achieve in the commercial finance market.
In a statement Tom White Waste said that the move comes following a long-term contract held with the company to sort and manage the city’s recyclable waste which has been in place since 2009.
Pleased
A spokesman for the company said: “We are really pleased to have concluded the sale of our business to Coventry city council.”
He added: “We have spent many years building a reputable local company and we are excited that the business will continue to grow into a far reaching and ever more successful entity. We’d like to thank all of our staff and we look forward to our continued relationship with the city council as we deliver business growth.”
A spokesperson for the city council said: “We are delighted with the opportunity to acquire Tom White Waste and we look forward to being part of a successful business with sound environmental principles.
“This transaction delivers a key part of our strategic commercial and environmental objectives, which will contribute to our long-term sustainable waste management practices.”
Sale
No value for the sale has been disclosed although local sources put the deal at circa £14.5 million. Tom White says it has a range of customers, including blue chip business and also does a substantial amount of work for the city council.
It is a supplier of RDF to Suez for use by Cemex via Tom White’s dirty MRF. The company also provides haulage operations for the city’s dry mixed recyclables to various materials recycling facilities.
Directors
Directors of Tom White Ltd – Ian White and Paul White – resigned from the business on the day of the sale, 5 March. It is thought that Ian White will remain with the company for about two years while Paul White has become a consultant to the firm.
Three directors are now listed: Philip Helm, finance manager at Coventry city council; Grant McKelvie, commercial business director at the city council; and Andrew Walster, director of streetscene and regulatory services at the authority.
Mr McKelvie is seen as one of the advocates of the move into the private sector by the authority. He has also been project director responsible for the delivery of a £34.5 million materials recycling facility at Sherbourne Resource Park.
In his biography it is noted that he spent “10 years in the waste sector as a commercial consultant, supporting both the private and public sector delivering waste management infrastructure under traditional PPP AND PFI deals.” He joined the council to support he a commercial approach to services.
Year-on-year growth
Tom White is described by the authority as “a going concern company that has achieved year on year growth in their turnover position, which has increased by 35% over 4 years and is forecast to continue with this trend this year.”
Purchasing the business can be done at low cost by the council because the shares count as capital expenditure and the authority can fund this through prudential borrowing.
The council is aiming to make a profit on the deal although the borrowing is not just aimed at the profit. The authority has said that the purchase “will realise significant service benefits as well as provide a forecast financial return to the Council over time. The Council has the skills required in respect of operating a business within this sector and this acquisition will only strengthen that position.”
“The acquisition of shares is capital expenditure and would, subject to Member approval, be incorporated into the capital programme.”Cove
And, the council can use its own internal services to organised the purchase. In a report in advance of the deal, Coventry noted: “The maximum additional financial exposure for the Council could be reduced based on ongoing negotiations and lower professional fees to complete the transaction.
“The acquisition of shares is capital expenditure and would, subject to Member approval, be incorporated into the capital programme. The expenditure is unfinanced capital spend, as capital receipts, revenue contribution or grant have not been set aside to meet this cost. All future dividends would be due to the Council as sole shareholder.”
Dividends
The report continues: “Based on past performance, the commercial rent for the site and dividends would be sufficient to meet the ongoing capital financing costs of acquiring the shares. The most appropriate financing option will be determined by the Director of Finance and Corporate Services depending on the availability of capital receipts, cash balances, interest rates etc. Options are being explored to reduce the capital financing costs for investments in the future where it is commercially advantageous to do so.”
Related links
Tom White Waste Ltd
Coventry city council report (item 11)
Subscribe for free