Merger Arb – 9% Upside
Waste management company Renewi has been approached by Macquarie Asset Management, with the final bid at £8.7/share. The current spread is 9%. Management has indicated they will support the offer if it becomes binding. Three shareholders (including the two largest), which collectively hold 15.1% of RWI, have signed irrevocable support agreements. The only remaining hurdle is the completion of confirmatory due diligence, which Macquarie is currently conducting. PUSU date has been set for December 26. Definitive agreement should be signed shortly, and the spread will narrow to minimal levels. The downside risk to pre-announcement levels stands at 25%.
Macquarie is a top-tier buyer with extensive experience in the waste management sector. It has invested $5bn in various waste management and recycling operations since 2007. Just last year, it acquired a majority stake in Florida-based Coastal Waste & Recycling (reportedly at $900m).
Macquarie seems to be very interested in RWI, having already approached the company 3 times over the last 14 months. The first offer, made in September 2023 at £7.70/share, was quickly increased to £8.10/share. Both proposals were swiftly rejected by RWI’s management as too low. The bidder returned this November with the final proposal of £8.70/share.
The offer values RWI at 6.7x TTM. adj. EBITDA, pro-forma for the recent divestiture of UK operations. That is in line/slightly above the valuation of European peers: Veolia (6.5x), Derichebourg (4.9x), Séché Environnement (6x), and Renewcell (5.2x). All these companies are highly leveraged. Considering the control/takeover premium, the offer seems kind of fair.
RWI has one vocal / potentially opposing shareholder – European PE firm Value 8. This tiny publicly listed fund has just €109m in assets runs a very concentrated portfolio (6 public, 5 private holdings). RWI is the second largest position. Last year, Value 8 was strongly against Macquarie’s initial offer, calling it wholly inadequate. However, the reaction to this year’s final bid had a much softer tone: “The current bid is higher, but only reflects the good long-term prospects to a limited extent. Value8 will assess the available information and make a decision on the intended bid on that basis” (translated from German). The statement is a bit vague, but I think the most telling thing is that Value 8 has been actively buying shares in the open market (here, here and here) after the announcement of the final bid. The fund has increased its stake from c. 2.2% to 2.31% at around £8.1/share. It’s unlikely that Value 8 would be buying shares at this level if it believed Macquarie might walk away or that the transaction could be voted down.
Given that no other bidders have emerged over the past year, the likelihood of a competing suitor stepping in is low. However, Macquarie has retained the right to submit a higher bid should another offer materialize.
RWI’s waste management/recycling business is very stable, and the company has been seeing some nice improvement in the margins over the last several years. EBITDA margin is expected to improve by another 0.5% following the unprofitable UK operations divestment. Historical financials are provided in the table below:
PUSU date has been extended to Jan 23.
In order to allow Macquarie to finalise its confirmatory due diligence, and for the finalisation of detailed terms and conditions, Macquarie has requested, and the Board of Directors (the “Board”) of Renewi and the Panel on Takeovers and Mergers (the “Takeover Panel”) have consented to, an extension of the original deadline under Rule 2.6(a) of the Code of 5.00 p.m. (London time) on 26 December 2024.
Consequently, in accordance with Rule 2.6(c) of the Code, Macquarie is now required, by not later than 5.00 p.m. (London time) on 23 January 2025, to either announce a firm intention to make an offer for Renewi in accordance with Rule 2.7 of the Code or announce that it does not intend to make an offer for Renewi, in which case the announcement will be treated as a statement to which Rule 2.8 of the Code applies.
Any update on this one, seems like still waiting for the completion of the due diligence with 1 day to go. Assume another extension?
That doesn’t signal anything yet. The deal could be announced at any time.
PUSU deadline extended to 5.00 p.m. (London time) of 13 February 2025.
https://www.actusnews.com/en/renewi/pr/2025/01/23/extension-of-rule-2_6-deadline
How come the spread hasn’t closed?
Is there still some doubt it will complete?
https://ii.co.uk/news/renewi-touts-nine-month-growth-agrees-takeover-terms-with-macquarie-al1739452054900926800
The deal is expected to be close during Q2, some 4-5 months away, and UK risk-free rate is 4.5%.
Some spread has to be there to compensate for the time value of money and some very small probability of regulatory hurdle.
Another non-binding UK arb wrapped up. Renewi has signed a binding agreement with Macquarie at the original 870p offer price. The spread has narrowed to 2%. Closing is expected in Q2 2025.
Can Value8 oppose the offer?