Waste Management, Inc. (WM - Free Report) announced yesterday that it has entered into a definitive agreement to acquire its smaller rival Advanced Disposal Services (ADSW - Free Report) . The transaction is expected to be completed by the first quarter of 2020.
Shares of the company have gained 25% over the past year, significantly outperforming the 17.7% rally of the industry it belongs to.
A Multibillion Dollar Deal
A subsidiary of Waste management will purchase all outstanding shares of Advanced Disposal in cash.
The enterprise value of the deal is $4.9 billion, which includes around $1.9 billion of Advanced Disposal’s net debt. Per-share value of the deal is $33.15, which represents a premium of 22% to Advanced Disposal's Apr 12 closing price and 20.9% to the company’s 30-day volume weighted average price as of the same date.
Waste Management plans to fund the acquisition through a combination of bank debt and senior notes.
It is one of the largest solid-waste company acquisitions in more than a decade and Waste Management’s largest acquisition in more than nine years.
Expands Footprint, Boosts Earnings and Cash Flow
The acquisition will add complementary assets and customer base, helping Waste management to strengthen its footprint in North America.
Waste Management, Inc. EPS Diluted (TTM)
It is anticipated to be immediately accretive to Waste management’s adjusted EPS and cash flow from core operating performance and selling general and administrative cost savings. More than $100 million in annual cost savings and capital expenditure is expected from transaction.
Zacks Rank and Stocks to Consider
Currently, Waste Management carries a Zacks Rank #3 (Hold).
Some top-ranked stocks in the broader Zacks Business Services sector are Automatic Data Processing (ADP - Free Report) and WEX (WEX - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The long-term expected EPS (three to five years) growth rate for Automatic Data Processing and WEX is 13% and 15%, respectively.
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