More than 13 months after Waste Management announced plans to acquire Advanced Disposal Services for $4.9 billion, the parties still await federal regulatory approval with less than two months until a significant deadline.

The deal continues to be viewed favorably in the financial community, with more than $100 million in operational synergies anticipated, at a time when transactions in numerous other industries are unraveling due to the pandemic's economic disruptions. But its extended length to completion has not gone unnoticed. Many analysts, brokers and industry sources Waste Dive has spoken to in recent weeks are wondering whether a price cut might be attempted, and why a divestiture agreement isn't finalized yet. Multiple potential buyers could still be in the mix for divestitures, though that list appears to have narrowed lately.

While Waste Management changed its initial Q1 closure goal back in March due to COVID-19, and has said this disrupted the work of company and federal government attorneys, multiple financial sources believe that initial estimate was always optimistic at best. Discussions about an anticipated divestiture package worth up to $200 million in annual revenue have been complex, particularly around markets such as Chicago, and were not believed to be close enough at the time, according to sources familiar with the process.

As the parties involved work to resolve all of this by the end of Q2, they are also up against a more binding drop-dead date of July 14 which could prompt the discussion of new terms. Per Waste Management's debt financing arrangement, the company could also potentially have to reedem the notes at a special price equal to 101% of the aggregate principal amount.

During the company's May 6 call, CEO Jim Fish said "we anticipate being in a position to close by the end of the second quarter" and noted the original timeline always envisioned 12-15 months. "So we're within that window in terms of this being in anticipation or anticipating being in a position to close, so we're not worried about that."

Fish was also asked about a potential price cut by one analyst, Stifel's Michael E. Hoffman, but declined to comment publicly. Hoffman previously made a case for this move in an April 12 report, given the pandemic's effects. He did not respond to a request for comment about whether that opinion stands.

Advanced's own Q1 report was not viewed favorably by analysts, and every major industry company has seen material effects, but some in the financial sector still view the idea of trying to rework deal terms so late in the process to be a challenge.

At the same time, industry and financial sources indicate it's increasingly probable the U.S. Department of Justice (DOJ) could require divestitures worth more than $200 million in annual revenues. If so, that could offer an opportunity to potentially recut terms. While it's also possible Q2 revenue declines could somehow be enough to bring the valuation of certain assets below this threshold, multiple analysts described that as less likely.

Waste Management declined to answer any questions for this story about the deal's timing, terms or potential divestiture plans other than to say the process is "ongoing." Advanced has gone into an extended quiet period, outside of necessary filings, and continues to mirror its acquirer's messaging about timing.

Divestiture jockeying

Divestitures were anticipated from the start, given the scale of this transaction (the industry's largest company buying what was once its fourth largest). For more than a year, the broader Chicago, Detroit, Philadelphia and Atlanta markets have all been discussed as prime candidates. Wisconsin is also in play and is believed to have some of the most attractive assets, while other states such as Florida are still occasionally mentioned as possibilities.

Waste Dive has yet to confirm a definitive list of divestiture assets. Based on past precedent and information learned about bidding options in certain areas, it is expected to include some combination of landfills, transfer stations and commercial or roll-off collection routes.

Sources with direct knowledge of the process have reported bids being due at different times in different regions, indicating a multi-buyer scenario could still be a possibility. Last week, in a story that sparked much discussion, M&A news site CTFN reported GFL Environmental was a leading contender to purchase unspecified divestiture assets. Multiple industry and financial sources with knowledge of the process have also told Waste Dive this is viewed as increasingly likely.

GFL's $500 million debt raise in April, only a month after its multibillion-dollar initial public offering, led many observers to speculate the Canadian player was indeed getting ready to bid. In a subsequent letter to investors, CEO Patrick Dovigi described the move as merely opportunistic and precautionary: "As we have seen from our experience in 2008, in late 2015 and now in 2020, credit markets open and close. In our view, it is always better to bring cash on to the balance sheet when you don’t need it. Today, we don't need it."

Dovigi declined to comment on the divestiture package for this story or when asked by an analyst in the company's earnings call last week. Dovigi did say during the call that GFL would continue pursuing strategic M&A opportunities this year after a temporary pause to assess market conditions during the pandemic.

The three others reportedly still in the mix, per CTFN, were Republic Services, Waste Connections and Meridian Waste. Republic, which previously told Waste Dive in January it remained interested in potential divestitures, declined to comment on any M&A speculation. Waste Connections could not be reached for comment.

North Carolina-based Meridian Waste said it "remains very interested in certain potential divestitures." The company has completed a string of deals in recent years following its acquisition by Warren Equity Partners in 2018. Meridian CEO Wally Hall was one of Advanced's founders back in 2000.

"We have been actively participating in the bid process and are hopeful that upon final DOJ approval and close of the Waste Management — Advanced Disposal transaction, the Company will have an impactful increase in new customers to help densify our existing footprint and potentially expand into new geographic areas," said Chief Marketing Officer Mary O'Brien in a statement.

Other names previously floated appear to be gaining less traction.

"We are interested in any and all divestitures in any southern state, but it is my understanding that WM has ignored our expression of interest," Waste Pro Senior Vice President Ron Pecora said via email.

Illinois-based Lakeshore Recycling Systems, which previously told Waste Dive it was "very interested" in any Midwest divestitures, declined to comment. FCC Environmental Services similarly declined to comment. Casella Waste Systems, which previously expressed interest in potential Pennsylvania divestitures, did not respond to a request for comment.

As part of the standard review process, staff from the DOJ and Federal Trade Commission (FTC) have been contacting people in the public and private sector across various states for the past year to understand how different divestiture scenarios might play out. In a sign that DOJ may still be weighing its decision, one public sector source reported hearing from the agency as recently as this month. Others, in a different Midwest state, reported they hadn't heard from the agency in multiple months despite offers to share more perspective.

Solving for Chicago

One area where there has been clear and sustained engagement between the public sector and federal officials is around Chicago. Waste Management and Advanced both have large presences in the region, yet Republic and Waste Connections do as well. But if GFL acquired any divested assets, it would be starting from scratch in the region.

Figuring out how much to divest, and who could get the assets without creating new competitive concerns, has reportedly been among the deal's more complex issues. Newly encountered documents offer a glimpse into how this process has unfolded in one region.

The Solid Waste Authority of Lake County (SWALCO), which represents 45 local Illinois governments just south of the Wisconsin border, reported first hearing from the DOJ's antitrust division in early May 2019. SWALCO sent a letter to DOJ in June 2019 outlining how a post-merger Waste Management could end up with 63% of the county's residential households under contract, control 44% of commercial waste collected, own both local landfills (Countryside and Zion) and run the only local MRF. The company would also own or operate the five closest landfills to Chicago, with Republic and Waste Connections running the others.

SWALCO hired its own antitrust attorney, in partnership with the neighboring Solid Waste Agency of Northern Cook County (SWANCC), which sent its own letter to DOJ last summer, and the group traveled to Washington, D.C. for a meeting with agency staff in September. SWANCC's executive committee minutes indicate "DOJ was receptive to their concerns." Subsequent minutes show both entities have remained in contact with the DOJ. SWALCO reported calling the agency just last week.

SWALCO Executive Director Walter Willis recently confirmed these details to Waste Dive and said the idea of Chicagoland going from four vertically-integrated players to three was not a desirable outcome.

“We've been blessed with very vigorous competition in our marketplace, and our businesses and our residents have benefited from that, and my agency is focused on trying to get the best services for the best price," said Willis, describing the pending deal as "too much aggregation of infrastructure and contracts" under one company.

According to Willis, Waste Management's Countryside Landfill has more limited capacity and "will likely not ever be able to expand" due to the constraints of its host agreement. The Zion Landfill, owned by Advanced, has slightly more capacity and is currently working through an expansion process that has continued into this year.

Knowledgeable sources outside of SWALCO reported one of those landfills was believed to be in play for divestitures – along with some regional transfer stations and select hauling assets.

One of those transfer stations could be in neighboring Kane County, which sent its own letter of concern to the DOJ in August 2019 outlining how a post-merger Waste Management could control all three local transfer stations and two of the three major landfills utilized by the county. The other is owned by Waste Connections. Kane County declined to comment for this story.

Like in many urban areas, Chicagoland's disposal needs are increasingly handled by fewer landfills that are farther away. Cook County, home to Chicago, has no landfills of its own. Chicago was said to be considering its own letter to DOJ, per March meeting minutes from SWALCO, but did not respond to a request for comment about whether it had done so.

SWANCC, which represents 23 local governments, inked its last disposal contract with Waste Connections subsidiary Groot Industries in 2015 but believes a competitive bid from Advanced was helpful in that process. This arrangement benefits the region's independent haulers because they can still bid on residential contracts without owning disposal assets, according to Executive Director David Van Vooren.

While SWANCC has no near-term exposure to the market, Van Vooren felt it was important to team up with SWALCO and take the rare step of engaging an antitrust attorney to preserve competition in the region.

"Anything you take away from me today is going to have a dramatic impact," said Van Vooren, speaking about what SWANCC's next contracting process might look like. "I can only hope that there's multiple players and multiple opportunities to maximize the economies of scale, so our residents can benefit by a fair and competitive process to get the best disposal rates as possible."

Both Willis and Van Vooren were hesitant to share direct thoughts on who the ideal buyer of any Illinois divestitures might be, given contractual or working relationships with area companies, but repeatedly expressed an interest in seeing independent haulers remain viable.

Once known for having many independent haulers, the Chicago market has seen significant consolidation – including the purchase of most family-owned companies as well as larger transactions between national players – and is well-acquainted with DOJ scrutiny.

The Zion Landfill itself has had numerous owners in just the past 20-plus years. Built by Browning-Ferris Industries in the 1970s, the site was sold as part of a federal divestiture requirement in the 2000 Allied Waste merger to a company that would later be known as Veolia over multiple name changes. Advanced took it on following the 2012 acquisition of Veolia's solid waste assets.

Now, the site will see yet another owner – either Waste Management or a yet-to-be-named divestiture buyer – if and when the industry's latest major deal comes to a close.

Correction: A previous version of this article misidentified the company that won SWANCC's disposal contract in 2015.