US-based Waste Connections Inc is buying Canada's Progressive Waste Solutions Ltd for about $2.67 billion in a deal that will make the combination the third-biggest waste management services provider in North America. The all-stock deal, structured as a reverse merger, will allow Waste Connections to move its tax domicile to Canada with its shareholders owning about 70 pct of the combined company.
The transaction is the latest in a string of deals where US companies have acquired foreign companies through reverse mergers to avoid higher tax rates at home. The $24.55 per share offer represents a premium of 4.4 percent to the last closing price of Progressive Waste's US-listed stock.
Waste Connections's shares were up 7 pct at $54.48 in early trading on Tuesday, while Progressive Waste's US-listed stock rose 8.3 percent to $25.52. With proforma revenue of about $4.1 billion, the combination will command a market share of about 7 percent, Barclays analyst Jon Windham wrote in a note to clients. The combined company and its larger rivals - Waste Management Inc and Republic Services Inc - will corner nearly half of the market share of the North American waste disposal market, the analyst said.
Windham, however, said he did not expect "significant regulatory hurdles" to the deal. Waste Connections, which has operations only in the United States, has few overlapping markets with Canada's Progressive Waste. The Canadian company gets about 63 percent of its annual revenue from the United States and the rest from Canada.
The combined company will be led by Waste Connections's current management team. The deal will result in more than $625 million of adjusted free-cash flow generation for the combined company in the first year from tax-effected synergies, capital expenditure discipline and other cash flow benefits. Progressive Waste, whose US shares have fallen 20 percent in the past 12 months, had put itself up for sale earlier this month.
Waste Connections also said it expects to report revenue of $531.9 million and adjusted profit of 48 cents per share for the fourth quarter ended December 31. Analysts on average had expected fourth-quarter earnings of 47 cents per share on revenue $521 million, according to Thomson Reuters I/B/E/S.
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