Texas-Based Waste Connections To Take Over Progressive Waste Solutions

TORONTO — Progressive Waste Solutions has agreed to a friendly deal that will see the Canadian waste management company merged into a new business that's controlled by shareholders and management of Texas-based Waste Connections.

 

The deal — a type of stock transaction known as a reverse takeover — will create a new Canadian corporate entity that's 70 per cent owned by shareholders of Waste Connections and 30 per cent by shareholders of Progressive Waste.

 

The nature of the transaction, which will leave the Canadian operations largely intact and divest certain American holdings, takes advantage of Progressive's low corporate tax rate and Waste Connection's high level of tax deductions.

 

"Some of that could have been lost if we had structured it with a traditional Waste Connections acquisition of Progressive," Ronald Mittelstaedt, Waste Connections chairman and CEO, told analysts in a conference call.

 

"We sort of achieved the best of both companies' tax situations from the way the structure is thus derived. It's pretty straightforward after that."

 

The deal will also require minimal regulatory involvement on either side of the Canada-U.S. border. Competition authorities aren't expected to raise objections because there's little overlap between the two companies' operations, he said.

 

Mittelstaedt said the combined company will generate about 15 per cent of its revenue in Canada through Progressive, 25 per cent from what is now Waste Connections' west region, 25 per cent from its east region and 25 per cent from a new south division that includes parts of both companies. 

 

"They have a leading market position in virtually every area they are in within Canada," Mittelstaedt said.

 

Similarly, in Texas and Florida, the Canadian company has a fully integrated collection and disposal business in a leading market position and "you could make the same statement about Louisiana, their position in Missouri."

 

The companies expect to cut US$50 million in sales and administration expenses and "accelerate Progressive Waste's progress in turning around certain underperforming markets in the U.S. that have hampered them in 2015."

 

The announcement comes two weeks after Progressive confirmed it was reviewing its strategic options.

 

Based on Monday's closing stock price in New York, Progressive's stock was worth US$2.8 billion and Waste Connections (NYSE:WCN) was worth about US$6.24 billion as stand-alone companies.

 

Progressive's shares rose after stock markets opened, gaining about four per cent in Toronto and eight per cent in New York.  Waste Connections shares were up about five per cent.

 

Waste Connections is based in Woodlands, Texas — north of Houston — and it operates in 32 states.

 

The companies say the current management of Waste Connections will lead the combined company, which will maintain a Canadian headquarters in the Toronto area.