Dive Brief:

• More than 74% of Advanced Disposal Services shareholders voted to approve amended terms for the company's sale to Waste Management at a special virtual meeting yesterday. More than 62% of shareholders also approved an updated executive compensation advisory proposal related to the deal.
• Under the new terms, Waste Management will purchase Advanced for $30.30 per share in cash (down from $33.15). A divestiture cap of assets worth $200 million in annual revenue has been removed. Waste Management's termination fee has been increased to $250 million, along with the addition of other provisions.
• The vote comes as the parties are awaiting final approval from the U.S. Department of Justice, with Advanced reiterating in a release the deal is "expected to close by the end of the third quarter." Multiple outside sources recently said a draft of the DOJ consent decree is believed to be complete or nearing completion.

Dive Insight:

While largely considered a foregone conclusion, this second approval by Advanced shareholders marks another milestone toward completing a major industry deal that was announced more than 16 months ago. Unlike before, there were no legal challenges to resolve ahead of time but the level of support was lower than the nearly 86% of shareholders who approved the original terms in July 2019.

The outcome of this vote was foreshadowed by early approval from the Canada Pension Plan Investment Board (which controls 18.3% of Advanced's shares) and generally positive feedback from analysts on the amended terms announced in June. Those changes lowered the total value of the deal from $4.9 billion to $4.6 billion, due to the pandemic's economic effects and higher than anticipated divestiture requirements.

"We think given the discount was only ~9% to the original deal price, and COVID-19 has impacted earnings more than that for many companies, that the shareowner vote is likely just a formality and should go through with minimal disruption," said Hamzah Mazari, a managing director at Jefferies, via email ahead of the vote. Mazari also noted at least $100 million in synergies are still expected post-integration.

As disclosed in previous proxy filings, Advanced has been circling around the possibility of a sale since at least the second quarter of 2018. It began talks with Waste Management in October 2018 after discussions with other unnamed industry participants didn't pan out. Following the deal's announcement in April 2019, speculation about the size and outcome of the divestiture package captured the industry's attention and Waste Management received inquiries from more than 50 parties interested in buying some or all of the assets as of February.

Beyond the complex divestiture process, the pandemic's onset was cited as an additional delaying factor that bumped the original merger agreement's end date into July. As the economic decline began to affect Advanced's earnings, and it became increasingly clear DOJ's divestiture requirements would be higher than envisioned, Waste Management moved to renegotiate. Per the proxy, CEO Jim Fish called Advanced CEO Richard Burke on May 13 with a new offer of $28 per share. This kicked off weeks of back and forth, with Advanced initially countering at $31.15 along with other amended terms on June 2.

During the weeks leading up to a final announcement on June 24, Waste Management made it clear DOJ's higher divestiture requirements meant it "would not be required to close the merger" per original terms. Advanced internally discussed a range of back-up plans, before coming to the conclusion a better offer from a third party was unlikely and rejecting the deal to continue operating as a standalone company could lead its share price to "decrease significantly." According to internal projections, the company's annual revenue and other earnings metrics were expected to be lower than originally anticipated through at least 2023 due in part to the pandemic.

While a price cut may not have been desirable, the amended terms include additional certainty for Advanced that Waste Management will make its best efforts to close the deal as all involved await DOJ approval. The pending divestiture package to be acquired by GFL Environmental will span assets in 10 states originally valued at $345 million in annual revenue for a purchase price of $835 million. The cost has since increased to $863.5 million due to additional assets being included.

In its own release yesterday, about another matter, GFL estimated wrapping the acquisition of these assets "by late Q3/early Q4 2020." This marks a slight shift from CEO Patrick Dovigi's more optimistic timeline in a recent earnings call, but falls within previously set expectations. The amended terms between Waste Management and Advanced include the possibility to extend the merger agreement's timeline to Nov. 30, pending certain conditions.