Cleanaway (ASX:CWY) share price on watch after Suez acquisition collapses

The Cleanaway Waste Management Ltd (ASX: CWY) share price will be on watch today after its plan to acquire Suez Australia collapsed…

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The Cleanaway Waste Management Ltd (ASX: CWY) share price will be one to watch this morning.

This follows news that its acquisition of Suez Australia’s business for $2.5 billion has hit the rocks.

What happened?

Overnight in Europe, French waste management giants Veolia and Suez announced an agreement to merge their operations.

According to Veolia, the agreement will create a global champion of ecological transformation, with revenues of around 37 billion euros.

Veolia also revealed that the agreement provides for: “The termination of the agreements with Cleanaway in accordance with their terms concerning the disposal of the assets in Australia (subject to the Sydney assets) and the suspension of any other significant disposal, which allows Veolia to acquire in particular all the assets designated as strategic in its draft offer document filed on February 8 with the Autorité des marchés financiers.”  

This is a bitter blow for Cleanaway, which has seen its share price surge higher since announcing a deal to acquire Suez’s Australian assets last week.

One small positive is that the deal with Suez for its Sydney assets remains in place. This comprises two landfill sites and five transfer stations for an agreed purchase price of $501 million.

What has been Cleanaway’s reaction?

This morning the company responded to the news.

It commented: “Cleanaway expects that the Suez R&R Acquisition will be terminated on, or prior to 6 May 2021, and that the Sydney Assets Acquisition will proceed. Suez has announced that the in‐principle agreement provides for the suspension of ongoing legal proceedings, and that all legal proceedings will be withdrawn upon entry into the definitive agreements between Suez and Veolia.”

Management remains positive on the acquisition of Suez’s Sydney assets and expects it to generate attractive returns. 

It said: “The Sydney Assets enhance and complement Cleanaway’s existing footprint, and deliver Cleanaway an immediate post collections solution for the Sydney region to internalise its waste. The acquisition of the Sydney Assets is expected to deliver attractive financial returns including pro forma EPSA accretion to FY20.”

During calendar year 2020, these assets generated net revenue of $193.1 million and normalised EBITDA of $72.9 million.

However, it may take some time before these assets are in the hands of Cleanaway.

Based on the expected timeline for completion of the takeover of Suez by Veolia, the Sydney assets acquisition is expected to complete in the second quarter of calendar year 2022.

Cleanaway intends to keep shareholders updated as and when information becomes available.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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