Waste group Shanks sets £600m price tag after private equity offer

Published on Monday 7 December 2009 21:39

SHANKS, the waste management company with Scottish roots, was last night heading towards a change of ownership after signalling its willingness to accept a £600 million takeover offer.

The group yesterday confirmed it had received a 135p-a-share approach from a private equity firm, understood to be US buy-out group Carlyle. While the move values Shank at 536m, the group is insisting that a cash offer of 150p a share – or some 600m – would "deliver an appropriate value to shareholders".

Shares in the firm, which was formed in the late 1880s as a construction company based in the west of Scotland and is still registered north of the Border, last night closed 43 per cent higher at 128.5p.

Nick Spoliar, an analyst at Altium Securities, said the approach could prompt counter-bids from other waste companies and private equity players, attracted by the steady returns from a business that often works with 25-year contracts.

"Businesses such as this … have long-term characteristics which are very attractive in terms of generating predictable returns over decades," he said.

Any takeover would make Shanks the UK's third waste management group to fall into private equity hands in recent years, following the buy-outs of rivals Cory and Biffa.

US-based Carlyle – one of the world's biggest private equity firms – is said to have made three approaches in the past few months, but Shanks did not previously announce them to the London Stock Exchange, believing they were not serious enough, according to reports.

The FTSE 250 waste management group, which has its main offices in Milton Keynes, said it had held "supportive discussions" with its two biggest shareholders – Legal & General and Schroders – and believed an offer of 150p or more would be appropriate.

Under chief executive Tom Drury, a former director of United Utilities, Shanks has cut debt through a rights issue and disposals, and sharpened its focus on recycling, organic waste treatment, and private finance initiative (PFI) work. The firm cut core net debt, which excludes some debt taken on by PFI projects, to 198m at the end of September, down 92m from six months earlier.

News of the takeover approach highlights how buyout firms, all but sidelined by the credit crisis, are returning to dealmaking as debt markets thaw.

Shanks has a string of UK sites, including operations in Lochgilphead in Argyll, Glasgow, Southampton and Rainham in Essex, with about 4,500 staff. It takes waste from offices, schools, shops, hospitals and factories.