Hands closes in on debut deal

Terra Firma has agreed terms on a £315m recommended offer for Waste Recycling Group, below the £340m indicative offer made in March.

Terra Firma Capital Partners, the UK private equity firm headed by Guy Hands, has reached agreement with major shareholders over the terms of a deal to de-list UK-based landfill operator Waste Recycling Group (WRG).


Terra Firma confirmed in March that it was planning to make an offer for the business following talks with UK utilities group Kelda, the major shareholder in WRG, which valued the group’s 45 per cent stake at £151m, or 285 pence per share.


The recommended offer, announced this morning, values the business at 267.5 pence per share, an equity value for WRG of approximately £315.2m and an enterprise value of approximately £530.9m (based on net debt as at 31 December, 2002).


This represents a premium of approximately 21 per cent to WRG's share price of 221 pence on 7 January (the day prior to the announcement by WRG that it had received an approach for the company from a private equity firm) and a premium of approximately three per cent to the closing price of 260 pence on 6 June.


The offer has been approved by the board of WRG as well as by Kelda, which at the time of the confirmation of talks with Terra Firma in March said that it held its interest in WRG solely as an investment and not a strategic holding.


Since its flotation in 1994, WRG has become one of the major waste disposal and recycling companies in the UK. The company enjoyed steady growth in the 1990s but has suffered from increased competition in the waste market as well as additional costs associated with increased regulatory requirements.


WRG announced worse than expected financial results for the year ended 31 December 2002. For the year ended 31 December 2002, the WRG Group's turnover was £302.5m on which it earned operating profit before tax, amortisation of goodwill and exceptional items of £53.5m, down from £58m the previous year.


Commenting on the deal, Guy Hands said he was “delighted” that the period of uncertainty for WRG has come to an end. “Terra Firma will ensure that Waste Recycling Group benefits from the greatest possible operational and strategic focus, positioning it as a leader in the UK waste management market. We believe that this focus will be good news for WRG and all of its stakeholders, notably its employees and customers.”


If approved by shareholders, the transaction will be the first acquisition for the Terra Firma Capital Partners II Fund that the firm is currently raising. To date, the Terra Firma Capital Partners II Fund has raised approximately E1.4bn. Facing subdued investor demand in what is a difficult climate for fundraisers, the fund’s original E3bn target has been revised downward to E2bn.