7th Jun 2022 17:51
(Alliance News) - The takeover offer Biffa has received appears "low for the quality" of the business, said broker Peel Hunt.
Biffa on Tuesday said it has received a takeover proposal, which it would be "minded to recommend" should it lead to a firm takeover offer.
The waste management firm also said current trading is in line with expectations, though it is currently facing a probe related to UK landfill tax laws. While there is no guarantee a claim could be brought against it, Biffa estimated a maximum hit of GBP153 million, plus penalties and interest.
Biffa said it has received a series of "unsolicited and indicative" proposals from private equity firm Energy Capital Partners LLC, an investor in the fields of energy transition, renewables and infrastructure.
ECP's proposal is in respect of a possible offer at a price of 445 pence per Biffa share in cash, valuing the company at around GBP1.36 billion. The offer is a 37% premium to Biffa's closing price of 325p on Monday.
Biffa shares closed 27% higher at 412.43 pence in London on Tuesday, giving the High Wycombe, Buckinghamshire-based company a market capitalisation of GBP1.26 billion.
Biffa said its board has concluded that should a firm offer be made on the same financial terms as the proposal, it would be "minded to recommend it" to Biffa shareholders. It has granted ECP due diligence access.
Peel Hunt was less enthusiastic on the approach.
"Whilst the bid is at a useful 35% premium to the undisturbed price, investors might have hoped for more. It is only 10% more than the shares traded at in 2H21, and 8.2x EV/Ebitda is only slightly better than the sector’s long-run rating of 7x. Acquisition prices in the industry vary widely, but this is towards the bottom end," the broker said.
Peel Hunt believes 500p per share would have been fairer, to reflect its growth potential, though acknowledged the landfill tax dispute clouds the picture.
The company also noted on Tuesday it is subject to a probe from UK tax collector HMRC with respect to the waste management firm's compliance with UK landfill tax rules.
Landfill tax is a levy imposed on a firm that disposes of materials in waste sites.
"Biffa strongly refutes HMRC's concerns. The company is fully co-operating with HMRC in relation to the Enquiry and is receiving advice from Ernst & Young," it said.
The company is yet to receive a landfill levy claim from the UK tax office. There is no guarantee that it will, though Biffa said there are a "range of outcomes" to the matter.
A potential liability ranges from GBP170,000 to a maximum of GBP153 million, plus penalties and interest.
Still, Peel Hunt believes a counterbid is possible, given the level of M&A interest in the waste industry.
Turning to current business, Biffa said it continues to trade well, with underlying performance being in line with the board's expectations. Volumes have remained at expected levels, and Biffa continues to mitigate inflationary pressures, it added.
"Good progress continues to be made in delivering key strategic priorities including the integration of recent acquisitions, ramping up production of food grade recycled plastics, and developing energy from waste projects," Biffa added.
Due to the takeover proposal, Biffa now plans to release its annual results on June 28, and not June 16 as initially scheduled.
By Eric Cunha; [email protected] and Lucy Heming; [email protected]
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