Cleanaway interim team’s first test as Suez clears air

Global giant Suez has cleared the air on complex talks with ASX-listed Cleanaway for the sale of its Australian assets, valued at $2.5bn.

Mark Chellew has taken on extra duties as chair of Cleanaway. Picture: Sam Mooy

ASX-listed Cleanaway’s new interim management faces its first test in complex negotiations linked to the purchase of global waste giant Suez’s $2.5bn worth of local assets, a legacy of controversial former chief executive Vik Bansal, who left the group last month.

Overnight, the French waste and water manager responded to “rumours”, confirming it had been in discussions with Cleanaway since the first half of last year, following an approach by the latter.

Suez, which is also in the midst of a takeover bid by French rival and largest shareholder Veolia, described the Cleanaway discussions covering the whole of its recycling and recovery activities in Australia as “advanced”.

“The transaction, if completed would create a strong player in the Australian market,” Suez said in a statement.

Former Cleanaway chief executive Vik Bansal. Source: Waste Management Review

It would also be something that fitted in with Suez’s strategic plan to dispose of selected assets to reduce its total capital employed in activities which are “not properly valued” and reinvest it to enhance growth and performance by 2030.

Suez’s recycling and recovery business generated $1.4bn in revenues in FY20.

Both parties agreed to an enterprise value of $2.5bn for the business, which was “well above the implicit valuation of this business within Suez in past trading”.

Suez noted that the valuation of the business was also higher than Veolia’s current offer of 18 euros ($27) plus dividend per share.

Analysts at Maquarie last month said Cleanaway may pay up to $3bn for the Suez Australia business and raise as much as $2bn worth of equity for the acquisition.

The deal will also need to be structured so that it is “compatible with” negotiations with Veolia.

Cleanaway’s negotiations would be dead in the water if, by the end of April or early May, Suez agrees to an incremental offer of 22.5 euros ($35) plus dividend per share by Veolia for all of the business.

The draft agreement also provides that for a three-week period, any third-party bidder, including Veolia, would have the right to make a superior offer for Suez’s Australian business.

Separately, Veolia has initiated legal actions against Suez and Cleanaway in France and Australia, Suez said, while describing them as “wholly without merit and indeed malicious” and designed to prevent Suez from demonstrating the intrinsic value of its business.

“There can be no guarantee that definitive agreements will be signed and a transaction will be implemented,” Suez’s statement said.

With a market capitalisation of $4.54bn, Cleanaway is Australia’s largest waste management company, booking $2.37bn of revenue, more than $500m in earnings and a net profit after tax of $152.9m at the end of the last financial year.

With the exit of former CEO Vik Bansal in early March, Cleanaway is currently in a period of management transition.

Mr Bansal stepped down in January – after defending charges of improper behaviour towards staff that cost him $2.3m in performance rights and issuing a public apology.

He is tipped to replace Daksesh (Dak) Patel as chief executive at Infrabuild, part of UK businessman Sanjeev Gupta’s global empire, which is facing its own challenges following the collapse of its biggest lender, Greensill Capital.

New chairman Mark Chellew, formerly CEO of ASX-listed construction materials group AdBri, has taken on extra duties while chief financial officer Brendan Gill has delayed his retirement to assist his replacement Paul Binfield.

The search is on for a new chief executive for Cleanaway, which closed the long weekend steady at $2.20.