UPDATE: September 25, 2020: Waste Management has once again extended the timeline for its $4.6 billion acquisition of Advanced Disposal Services and related sale of divestitures worth $863.5 million to GFL Environmental. According to a new filing, the company "now anticipates closing these transactions early in the fourth quarter of 2020, following the anticipated completion of the U.S. Department of Justice's regulatory review of the acquisition." Per reporting by CTFN, a draft consent order was recently circulated for final review by the relevant parties and the deal could close as soon as mid-October.

Dive Brief:

• Waste Management has renegotiated plans to acquire Advanced Disposal Services for $30.30 per share (down from $33.15) for a new total of $4.6 billion including debt. The parties now anticipate closing the deal by the end of the third quarter, pending approval from the U.S. Department of Justice (DOJ).
• GFL Environmental has been named as the buyer of "substantially all anticipated divestitures" for a purchase price of $835 million. This includes assets worth an estimated $345 million in annual revenue during 2019, $300 million of which is intended to address divestiture requirements by DOJ.
• According to GFL, this package includes "32 collection operations, 36 transfer stations and 18 landfills supported by 380 collection vehicles" across 10 states. GFL reports it will bring on 900 employees from Waste Management and Advanced as part of the transaction.

Dive Insight:

With a previous Q2 closing target fast approaching, along with a prior July 13 walk date agreement, this transaction has become one of the most closely watched in the M&A space. Divestitures have widely been expected to surpass the original $200 million cap outlined in the April 2019 merger agreement, with a $370 million prediction from Stifel's Michael E. Hoffman among the closest estimates.

A price cut had also been widely discussed, given a contraction in Advanced's business over the past year due to merger-induced stasis and the effects of the coronavirus pandemic. Still, analysts like Hamzah Mazari of Jefferies recently told Waste Dive they still view Advanced as an attractive play for Waste Management. In the company's announcement this morning, it reiterated expectations for "annual cost and capital expenditure synergies to exceed the $100 million previously announced" as a result of the transaction.

“We continue to be excited by the compelling strategic rationale and financial benefits of the Advanced Disposal acquisition,” said Waste Management CEO Jim Fish in a press release. “Over the last several months, as we have worked to gain regulatory approval from the U.S. Department of Justice, we have become increasingly convinced that the people and customer additions this acquisition brings to Waste Management will be of tremendous value[.]"

This news is a major development for Canadian GFL, which entered the U.S. solid waste market in 2016 and has now grown to become its fourth-largest player following multiple acquisitions. According to the company's release, it will acquire vertically-integrated assets in Wisconsin and other parts of the Midwest. GFL also stated assets in Michigan, Pennsylvania, Alabama and Georgia will complement its existing operations. The other five states are not named, but Illinois has been confirmed as an expected area for divestitures. Multiple sources have also discussed Florida, Kentucky, Indiana and Minnesota as possibilities.

"Even during these unprecedented times, we continue to successfully execute on our growth strategy of pursuing strategic and accretive acquisitions. This transaction presents GFL with a unique opportunity to significantly expand our U.S. footprint through the acquisition of a high quality, vertically integrated set of assets in both our existing and adjacent fast growing U.S. markets," said CEO Patrick Dovigi in a statement.

GFL's more limited footprint in certain areas, as compared to other large players, and its positive relationship with Waste Management in recent years were taken as signs that it was increasingly likely to be the named divestiture buyer. As part of the deal, Waste Management also announced a "reciprocal 5-year disposal arrangement" with GFL "that will provide the Company with competitive, stable and predictable pricing and disposal terms." Further terms of that arrangement were not specified.

While a price cut has not been viewed as a desirable outcome for Advanced, the announcement of a divestiture plan and extended timeline can be viewed as providing more certainty.

“We believe the revised agreement with Waste Management, coupled with our joint agreement to sell substantially all of the divestitures to GFL Environmental, delivers significant value and certainty of closing to Advanced Disposal stockholders,” said Advanced CEO Richard Burke in a statement.

A new Advanced shareholder vote will be required as part of the amended terms, now expected in the third quarter. In a sign of support, the companies also announced today that the Canada Pension Plan Investment Board (which holds approximately 18% of outstanding Advanced stock) has agreed to vote in favor of an amended agreement. That entity has been supportive of the deal since it was first announced in 2019.

Waste Management has agreed to remove a requirement that Advanced reimburse it for up to $15 million in expenses if shareholders do not approve the merger. The company has also increased the termination fee it could pay Advanced, based on certain conditions, from $150 million to $250 million.

The announcement's language referencing the sale of "substantially all" required divestitures to GFL indicates some assets could potentially still go to another party, as has been discussed for months, but no further details were provided. Waste Management's acquisition of Advanced, and sale of divestitures to GFL, remains contingent on DOJ approval. The agency has not made any new statements on the transaction as of publishing time.

Under the amended agreement, the deal's walk date has been extended to Sept. 30 and can automatically extend to Nov. 30 if shareholder or regulatory approval has not yet occurred.