US/Europe Event-Driven Analyst

John DeMasi

CFA, CPA (New York State, status: inactive) with 20+ years on buyside (PM & analyst) at numerous hedge funds and proprietary trading desks in NYC and London, covering North American and European event driven investments.

Advanced Disposal Services/Waste Management – Draft Merger Proxy Filing Details

Event-Driven

Advanced Disposal Services I / Event-Driven

<a href="https://www.smartkarma.com/entities/2560" target="_blank" data-smartkarma-citation="entities:2560:1">Waste Management (WM US)</a>, an active acquirer founded by the late American businessman and entrepreneur Wayne Huizenga (who also founded Auto Nation, and acquired Blockbuster Video when it was a chain of just a few stores and grew it into a behemoth), <a href="http://s2.q4cdn.com/222406865/files/doc_news/2019/04/News-Release-Waste-Management-to-Acquire-Advanced-Disposal-for-%244.9-Billion-041519-Final.pdf" target="_blank">announced</a> on April 15, 2019, a definitive agreement to acquire <a href="https://www.smartkarma.com/entities/26366" target="_blank" data-smartkarma-citation="entities:26366:1">Advanced Disposal Services I (ADSW US)</a> for $4.9 billion ($3 billion equity value plus assumption of $1.9 billion of net debt) in a deal structured as a cash merger. The deal price is $33.15 cash per share of ADSW, which represents a 22.1% premium to ADSW’s closing price on Friday, April 12, 2019, and a 20.9% premium to its 30 days VWAP.
With ADSW now trading $.85 below the deal price, investors can earn a gross 2.6% spread (the Company does not pay a dividend). The companies expect the deal to be completed by the first quarter of 2020, meaning a second request under the U.S. antitrust review process is a virtual certainty. So on first blush, the spread looks quite tight for a deal that can take up to 11 months (WM actually said on their Q1 19 earnings call they expect the deal to take 10 -12 months to complete) so the annualized rate of return looks to be in the 3.0% - 3.4% range, assuming a closing date of mid February 2020 to mid/late March 2020.
Could there be a logical reason for ADSW's tight spread, such as the prospect of a competing bidder? In this piece I dumpster-dive into the deal details and explore whether investors should buy it or bin it.

Waste Management (WM US), an active acquirer founded by the late American businessman and entrepreneur Wayne Huizenga (who also founded Auto Nation, and acquired Blockbuster Video when it was a chain of just a few stores and grew it into a behemoth), announced on April 15, 2019, a definitive agreement to acquire Advanced Disposal Services I (ADSW US) for $4.9 billion ($3 billion equity value plus assumption of $1.9 billion of net debt) in a deal structured as a cash merger. The deal price is $33.15 cash per share of ADSW, which represents a 22.1% premium to ADSW’s closing price on Friday, April 12, 2019, and a 20.9% premium to its 30 days VWAP.
With ADSW now trading $.85 below the deal price, investors can earn a gross 2.6% spread (the Company does not pay a dividend). The companies expect the deal to be completed by the first quarter of 2020, meaning a second request under the U.S. antitrust review process is a virtual certainty. So on first blush, the spread looks quite tight for a deal that can take up to 11 months (WM actually said on their Q1 19 earnings call they expect the deal to take 10 -12 months to complete) so the annualized rate of return looks to be in the 3.0% - 3.4% range, assuming a closing date of mid February 2020 to mid/late March 2020.
Could there be a logical reason for ADSW's tight spread, such as the prospect of a competing bidder? In this piece I dumpster-dive into the deal details and explore whether investors should buy it or bin it.

Waste Management Buying Advanced Disposal Services – A Rubbish Deal or Cash from Trash?