Waste Management, Inc. (WM - Analyst Report) recently inked a definitive agreement with private equity firm Energy Capital Partners to divest its subsidiary Wheelabrator Technologies Inc. for about $1.94 billion in cash. The transaction is expected to close in the later half of the year, subject to the mandatory closing conditions and regulatory approvals. Barclays PLC (BCS - Analyst Report) and private investment banking firm Centerview Partners served as financial advisors on the transaction.
The strategic move is intended to concentrate more on the core operations of Waste Management and reduce earnings volatility related to electricity sales. With four independent power-producing facilities, Wheelabrator has a combined electricity generating capacity of 853 megawatts. In addition, Wheelabrator’s portfolio includes 17 waste-to-energy facilities, four ash monofill landfills, three transfer stations and an ongoing development and construction project in the U.K.
Although all these operating units helped Waste Management’s waste-to-energy business flourish and generated approximately $845 million in total revenue in 2013, they were deemed to be a misfit to the long-term corporate objectives. Consequently, Waste Management decided to offload the business in the best interests of its shareholders. The company, however, will continue to supply waste products to some of the facilities of Wheelabrator post-sale.
Waste Management intends to utilize the proceeds from the asset sale to drive incremental shareholder value in a way that would lead to earnings accretion in the long term. The company expects to follow a combination of share repurchase activities and acquisition of similar firms to judiciously use the sale proceeds.
Waste Management expects an earnings accretion of 2 cents per share in 2015 if the proceeds are entirely utilized for share repurchase activities. However, if the acquisition of potential targets is found to yield better earnings accretion, the company might pursue those opportunities instead.
Headquartered in Houston, TX, Waste Management provides collection, transfer, recycling and resource recovery, as well as disposal services to residential, commercial, industrial and municipal customers in the U.S. The company aims to focus on improving customer retention by consistently providing better services and higher value solutions.
Waste Management currently has a Zacks Rank #3 (Hold). Other stocks that look promising and are worth considering in the industry include Clean Harbors, Inc. (CLH - Analyst Report), which carries a Zacks Rank #2 (Buy) and US Ecology, Inc. (ECOL - Snapshot Report) with a Zacks Rank #1 (Strong Buy).