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Biffa accepts lowered £1.3bn US private equity bid

Biffa has accepted a lowered £1.3bn takeover bid from a group controlled by US private equity firm Energy Capital Partners, as turmoil in UK markets weighs on dealmaking.

The British waste management company said on Tuesday it had recommended that shareholders accept the 410p a share offer from ECP-controlled Bears Bidco, below a tentative bid of 445p a share submitted in June.

Including dividend payments, the offer is 28 per cent higher than the FTSE 250 group’s closing price of 325p a share on the day before the June bid was announced, and values Biffa’s equity at about £1.3bn.

Shares in the company, which closed at less than 320p on Monday, jumped 28 per cent in early trading on Tuesday.

“It is the Biffa Board’s view that this offer represents a compelling opportunity, particularly in a weakening economic environment, for shareholders to realise, in cash and with certainty, the potential for future value creation,” said Biffa chair Ken Lever.

However, he conceded that the offer was “lower than the proposal previously announced”.

Analysts at Citibank said the lower offer “could be the outcome of a weak macro environment and the recent sterling devaluation”.

“While waste management is generally non-discretionary, production of [commercial and industrial] waste was shown to be cyclical between 2008 and 2010,” said Citi. “Against a range of fixed costs, we would expect I&C collection to exhibit negative margin leverage during the UK’s next economic recession.”

ECP said it had targeted Biffa because of the group’s “position as a leader in UK sustainable waste management, underpinned by a strong national brand and extensive service coverage”.

“Given generally supportive but uncertain public policy in the waste management sector, ECP believes that Biffa requires patient, sustained capital investment predicated on a long-term investment horizon,” ECP added.

After initially providing haulage services to coal-fired power stations, Biffa was bought by Severn Trent in 1991 and floated in 2006.

In 2008, the company was taken private again by a group of private equity investors, before rejoining the London stock market in 2016.

Biffa’s prospects “are underpinned by long-term growth drivers including the UK government’s policy objectives to increase plastics recycling and re-use, eliminate avoidable waste and achieve 65 per cent recycling of municipal waste by 2035”, ECP said.

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