Shanks and the Pennon Group issued statements today confirming that talks between them concerning the sale of Shanks' landfill business to Pennon are at an “advanced stage”.
And, both Shanks and Pennon – parent company of Viridor – confirmed that they have been approached by capital investment firm Terra Firma with regard to a possible buy-out of their companies.
Terra Firma, which bought Waste Recycling Group last summer in a 300 million deal, has had an offer of more than 1 billion rejected by Pennon.
Shanks also rejected an earlier approach from Terra Firma, but Shanks has now said a fresh approach – with an increased offer thought to be over 200 million – has since been received from Terra Firma. This would indicate a two-way contest between Pennon and Terra Firm for the Shanks landfill business.
Discussions
This morning's statement from Pennon concerning its interest in Shanks said: “The Board of Pennon Group confirms that it is in discussions with Shanks Group Plc regarding the possible acquisition of Shanks's UK landfill and landfill gas assets, in pursuit of Pennon’s stated strategy. These discussions are continuing and are at an advanced stage.
“Any such acquisition would have to satisfy Pennon's normal criteria for any investment in the waste management sector, as well as reinforcing Pennon's progressive dividend policy. There can be no assurance that any such acquisition will be agreed,” it added.
Shanks commented: “Shanks Group confirms that for some months it has been in discussions with the Pennon Group concerning the potential sale of its UK landfill and landfill gas assets to Pennon. These discussions are continuing and are at an advanced stage, although there can be no certainty that they will lead to such a sale.”
Terra Firma
The statement from Shanks revealed that during its discussions with Pennon it was also approached by Terra Firma with a view to acquiring its landfill assets. Terra Firma asked Shanks to enter into exclusive talks with it for the landfill business for a period of eight weeks. Based on the price Terra Firma was offering, Shanks rejected this approach.
But, the statement from Shanks said: “Terra Firma has recently re-approached Shanks. The pre-conditions have been removed and the indicative price has been improved, however, the requirement for due diligence remains.
“There is uncertainty over whether Terra Firma's approach would lead to a binding offer for the Landfill Assets and, if it did, what the consideration and contractual terms would be.”
Pennon
The Pennon Group, which includes South West Water as well as Viridor, said today that a consortium of investors led by Terra Firma had made a preliminary, conditional approach for the whole group.
But it said: “The (Pennon) Board unanimously decided that the approach failed to recognise the strategic value of Pennon, its consistently outperformed its regulatory contract while Viridor Waste continues to offer significant opportunities for earnings growth. Therefore, following consultation with some of Pennon's largest shareholders, the Board rejected the approach.”
Terra Firma declined to comment on Shanks or the Pennon Group, but a source close to the company confirmed that there was some interest in the companies.
Pennon and Shanks said a further announcement would be made “when appropriate”.
Capacity
Terra Firma's Waste Recycling Group business is currently the largest player in the landfill market, with analysts suggesting it has about 100 million cubic metres of consented landfill capacity.
After buying Thames Waste Management just a few weeks ago for 30.5 million, Pennon's Viridor Waste now has consented landfill capacity of 83 million cubic metres available.
If Pennon is successful in acquiring Shanks' landfill business, however, it would overtake WRG as market leader by a significant margin. Shanks, which has been looking to sell assets as part of a new strategy following difficult trading conditions in the last few years, is thought to have about 80 million cubic metres of landfill space available.
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