Regulators not likely to block Waste Services merger; arbs play into Kraft bid for Cadbury

By Cristal Cody

Tupelo, Miss., Nov. 11 - IESI-BFC Ltd. and Waste Services, Inc. announced plans Wednesday to combine in an all-stock deal valued at $370 million that will create North America's third-largest solid waste management company, and no regulatory hold-ups are expected, an analyst told Prospect News.

In other situations, an analyst said that short-term investors might give Kraft Foods Inc. the boost it needs to take control of Cadbury plc.

In a late-breaking deal on Wednesday, Hewlett-Packard Co. said it will acquire 3Com Corp. for $2.7 billion, or $7.90 a share.

The offer represents a premium of about 39% to Marlborough, Mass.-based 3Com's closing stock price of $5.69 on Wednesday.

Shares of Palo Alto, Calif.-based Hewlett-Packard closed up 4 cents, or 0.08%, at $50.00.

On Wall Street, stocks finished the day up on light trading during the Veterans Day holiday.

The Dow Jones Industrial Average added 44.29 points, or 0.43%, to close at 10,291.26.

The Standard & Poor's 500 index rose 5.50 points, or 0.50%, to 1,098.51, and the Nasdaq Composite index gained 15.82 points, or 0.74%, to finish at 2,166.90.

Waste Services deal lacks due diligence

Burlington, Ont.-based Waste Services said it will combine with Toronto-based IESI-BFC in a deal that values the company at $7.76 per share, a 7.2% premium to the stock's closing price of $7.24 on Tuesday.

Under the terms, IESI-BFC will pay 0.5833 of a share for each share of Waste Services, subject to a collar on the transaction.

Investors Westbury Ltd. and Kelso & Co., LP, which control 33% of Waste Services' outstanding shares, have agreed to support the transaction.

IESI-BFC said it will utilize part of its available credit capacity of $435 million and increase the size of its Canadian revolving credit facility to about C$450 million from C$305 million. The existing debt of IESI-BFC's U.S. revolving credit facility will remain outstanding after closing.

The transaction is subject to completion of due diligence, Waste Services' shareholder approval and approvals by the Canadian Competition Bureau and U.S. regulators. The companies will have 30 days to complete due diligence.

"Although due diligence remains a condition of closing, we felt it [prudent] to announce the transaction," Keith Carrigan, chief executive officer of IESI-BFC, said on a conference call with analysts and investors on Wednesday.

Carrigan said the companies have some overlapping operations in Canada, but the companies expect no regulatory issues.

The combined company will be based in Toronto and provide services in 11 U.S. states, the District of Columbia and six Canadian provinces.

"We feel very, very good. We feel the review period will be the normal review period," he said.

The deal includes an $11 million break-up fee with conditions.

The transaction is expected to close during the first quarter of 2010.

Michael Hoffman, an analyst with Wunderlich Securities, Inc., told Prospect News on Wednesday that the offer is a good move.

"I don't see any regulatory issues. They are more complementary than they are overlapping," he said. "The combination will create a stronger competitor to the bigger players in the market, and that's better for the consumer. I think everybody will look at this and see it as a strategic and attractive deal."

U.S.-listed shares of Waste Services added 41 cents, or 5.66%, to close Wednesday at $7.65.

IESI-BFC's U.S.-listed shares closed up 39 cents, or 2.93%, at $13.70.

Short-term Cadbury holders on the rise

The European Commission has scheduled a Dec. 14 provisional deadline to review Northfield, Ill.-based Kraft's hostile bid for the British candy maker.

Kraft met a Monday deadline by the U.K. Panel on Takeovers and Mergers to formalize its offer for Cadbury, but it submitted a bid that was unchanged from a proposal Cadbury rejected in September.

The offer for 300p a share and 0.2589 of a share of Kraft for each share of Cadbury values the confectioner at about 720p a share, well below Cadbury's current trading price of 763p a share.

Although some investors are still betting on a hefty bid increase, Kraft's final price "could be disappointing in the absence of a counter bid," said Emiliano Leggieri, an analyst with Pali International Ltd. "We continue to have the feeling that now that it has gone hostile, Kraft does not need to offer a large sweetener to win Cadbury's shareholder resistance in the absence of a third-party bid."

Leggieri said in the research note released Tuesday that Cadbury's trading volumes are strong and indicate a switch from long-term to short-term holders.

"We estimate that since Sept. 7, 41% of Cadbury shares exchanged hands," Leggieri said. "The later we get into the acceptance period, the higher the chance that shares will be exchanged between short-term investors, although it is easy to see that short-term investors will get the minimum 50% needed by Kraft to get control of Cadbury."

Kraft shares rose 2 cents, or 0.07%, to close at $26.82 on Wednesday.

Mentioned in this article:

3Com Corp. Nasdaq: COMS

Cadbury plc London: CBRY

Hewlett-Packard Co. NYSE: HPQ

IESI-BFC Ltd. NYSE: BIN

Kraft Foods Inc. NYSE: KFT

Waste Services, Inc. Nasdaq: WSII

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