Terra Firma, the private equity firm headed by Guy Hands, has confirmed that it has entered into negotiations with UK utilities company Kelda over plans to acquire Kelda's 45 per cent stake in UK landfill operator Waste Recycling Group.
The two groups have entered into an eight week exclusivity agreement over an offer for Kelda’s holding at a price of 285 pence per share. “We have held our shares in WRG as an investment,” said John Napier, chairman of Kelda. “Entering into this agreement with Terra Firma will add some certainty to the situation.” Kelda owns 53m shares in WRG, worth a total of £151m.
WRG confirmed in early January that it was in talks with an unnamed company, rumoured to be a financial buyer, over an offer for the company. Reports at the time suggested that London-based private equity house Candover was the mystery bidder.
Today news of the Terra Firma offer saw shares in WRG climb 30 per cent to 267 pence, against an opening price of 201 pence this morning. This compares with a twelve month high of 465 pence last April and a low of 160 pence in December. WRG’s share price has underperformed the service sector by 15 per cent as investor concern grows over anticipated legislation that will put a surcharge on landfill waste programs.
In the six months to 30 June 2002, WRG reported a 17 per cent increase in turnover to £151m. Pre-tax profits held steady for the same period at £21.7m. The company also has debt of just over £300m, giving the deal a total value of £640m.
The deal will take on an added significance for Terra Firma, given the recent collapse of a deal to acquire a portfolio of publicly-owned flats in Cologne and the announcement by Hands earlier this week that the firm was unlikely to hit its original E3bn target, aiming instead to raise around E2bn by June.
Waste Recycling Group would appear to fit the Terra Firma acquisition criteria. The group focuses on large, low growth, out-of-favour businesses that it can turn around and aims not to rely on market appreciation or IPO exits to achieve profits.