The Cleanaway Waste Management Ltd (ASX: CWY) share price is in focus after the company announced its latest acquisition.
Cleanaway has a market capitalisation of $5.6 billion at the time of writing. However, it's about to get a bit bigger after the company announced a capital raising and a deal to expand its network.
Let's look at what the company announced.
Global Renewable Holdings
Cleanaway has big plans with its 'Blueprint 2030' strategy, which includes medium-term opportunities to "deliver the blueprints under the strategic infrastructure growth and sustainable customer solutions pillars". This starts with Global Renewables Holdings Pty Ltd (GRL).
GRL is a licensed composting facility that processes around a fifth of Sydney's 'red bin' household waste at its strategically located Eastern Creek site and delivers around 30% of landfill diversion and "better carbon outcomes" compared to landfill.
The facility currently composts 'organics' from red bin household waste and will gradually transition to source separated food organics and garden organics feedstock to meet council customer needs.
Cleanaway is the exclusive contracted provider of waste to the GRL facility until 2032, with waste supply underpinned by contracts with surrounding councils, with which Cleanaway has long-term existing relationships.
Cleanaway said it's committed to enhancing the facility over time, including an expected $40 million to $45 million update to enclose the compost maturation area.
What are the financial implications for Cleanaway shares?
Cleanaway has entered into a binding agreement and the overall acquisition price is $168.5 million.
The company said that GRL would add 5.2% to its earnings per share (EPS) on an FY22 basis based on the placement proceeds used to fund the purchase price and transaction costs associated with the acquisition.
Cleanaway said this provides the business with an opportunity to immediately internalise existing volumes and acquire "attractive" pro forma FY22 earnings before interest, tax, depreciation and amortisation (EBITDA) of approximately $21.4 million.
The acquisition also eliminates an unfavourable contract provision for Cleanaway in relation to GRL where payments to GRL exceeded receipts from councils (this contract was acquired as part of the Suez acquisition).
Cleanaway also said this deal would allow it to leverage its geographically diverse network to capture organics share, with GRL and a further planned Lucas Heights facility providing Sydney-wide processing capability.
How is it going to pay for this?
Cleanaway is undertaking a fully underwritten placement of new Cleanaway shares to eligible institutional investors to raise $350 million.
The offer price is $2.50, which is a 7.7% discount to the last closing price of $2.71 per share.
This will result in around 140 million new shares being issued, representing 6.8% of its existing issue capital.
With the share purchase plan, eligible Cleanaway shareholders will be able to subscribe for up to $30,000 of new shares. It's intended to raise up to $50 million.
Cleanaway share price snapshot
Cleanaway shares are currently halted at $2.71 each. They have dropped 14.5% this year to date, but are up almost 6% over the past 12 months.
