- Private equity investor proposes 445p per share
- M&A interest in waste management and recycling growing
- Tax issue could prompt investors to accept offer
Waste management and recycling group Biffa (BIFF) revealed it had recently received ‘a series of unsolicited and indicative proposals’ from affiliates of private equity firm Energy Capital Partners (ECP) resulting in a possible cash offer of 445p per share.
The news sent Biffa shares up as much as 30% to 423p compared with Monday’s closing price of 325p.
HISTORY REPEATING
For Biffa shareholders it’s a case of dejà vu given the firm was bought by private equity in 2008 just two years after demerging from utility group Severn Trent (SVT).
At 445p per share the ECP proposal represents a premium of just under 37% to yesterday’s closing price and values the firm’s equity at £1.36 billion.
The Biffa board has chewed over the proposal with its bankers and decided that ‘should a firm offer be made on the same financial terms it would be minded to recommend it to shareholders’.
HIGH STAKES
As well as representing a chunky premium to the undisturbed share price, ECP’s proposal takes into account the risk associated with the current HMRC enquiry into certain aspects of Biffa’s landfill tax compliance.
The waste management firm says it is co-operating fully with the government in its enquiry and there is no certainty a claim will be brought but at the same time there is no end date in sight.
Based on advice to date, Biffa estimates its potential liability could be anywhere from £170,000 based on its own assessment up to a possible maximum of £153 million based on HMRC’s assessment for the period from March 2016 to March 2020.
Analysts at Peel Hunt described ECP’s proposed offer as ‘low for the quality and potential of the business, but one that risk-averse investors might choose to accept given a potentially significant tax dispute’.
They also suggest a bidding war for Biffa is possible ‘given the level of M&A (merger and acquisition) interest in the waste industry’ and suggest 500p per share would be a ‘justifiable’ price.
