Dive Brief:
- Texas-based Waste Connections and Toronto-based Progressive Waste Solutions have reaffirmed their commitment to merge in the so-called "inversion deal" after the Treasury Department announced new proposed tax regulations on such deals on Monday.
- The tax regulations will be imposed on the merge as the companies' corporate address will be domiciled in Canada, but will operate out of The Woodlands, TX. In order to combat the regulations, the companies announced they will dent combined adjusted free cash flow by less than 3% in the first year post-deal, according to The Wall Street Journal.
- Shares for Waste Connections and Progressive Waste fell 5.2% and 7% respectively following the tax regulation announcement, but the companies regained shareholder confidence following their reaffirmation announcement.
Dive Insight:
The Wall Street Journal explained that the Treasury Department proposed such regulations to prevent "earnings stripping," a maneuver in which companies move their tax address out of the US—where there is a 35% corporate tax rate—and into a state where tax rates are lower. This technique against inversion deal will also affect a large merge between Pfizer Inc. and Allergan PLC.
Waste Connections and Progressive Waste, however, have ensured that the deal will move forward regardless of these impositions. Once merged, the company will trade under the Waste Connections name, with about 70% oft the company belonging to Waste Connections shareholders and 30% of the company belonging to Progressive Waste shareholders.
In late February, the companies announced that they had terminated the applicable waiting period under the HSR Act of 1976 for the all-stock transaction, propelling the companies one step closer to closing the deal. Once the deal is complete, the merged company will be the third-biggest waste management services provider in North America.
The deal is expected to close in the second quarter of 2016, following other customary closing conditions. Waste Dive will continue to update this story as more information is released.
