Parent company Pennon Group opts to focus on its water businesses, as it announces plans to exit waste and recycling sector
Leading water utility specialist Pennon Group has agreed to sell its waste and recycling arm Viridor to a group of investors in a deal worth £4.2bn, the firm announced today, in what would be one of the most significant transactions in the UK resources industry in recent years.
An agreement for the sale has been struck with Planets UK Bidco Ltd, a newly-formed company set up by investment funds advised by US private equity firm KohlbergKravis Roberts (KKR) for the purpose of the deal. The purchase is now expected to be completed in the summer.
The sale of Viridor, which operates a host of waste-to-energy facilities and waste management contracts across the UK, would complete Pennon Group's exit from the waste and recycling sector, as it seeks to concentrate fully on its water and wastewater businesses.
The FTSE 250 firm owns both South West Water - which serves around 1.7 million customers in Cornwall, Devon, and parts of Dorset and Somerset - and holds a majority stake in Pennon Water Services, which serves business customers across England and Scotland.
Viridor, meanwhile, provides household waste and recycling services to around 150 local authorities across England, Scotland, and Wales, in addition to building and running a fleet of facilities which generate heat and electricity from incinerating waste.
The company also operates a number of recycling facilities, and last year announced plans to develop a "ground-breaking" £65m project near Bristol designed to produce more than 60,000 tonnes to recycled plastic polymers each year. The company also provides waste and recycling services to major corporates, and in February struck a recycled plastic packaging deal with consumer goods giant P&G.
But today Pennon said the sale was in the best interests of its shareholders, and that it planned to use the proceeds to reduce its borrowings and make a return to its shareholders, as well as "retaining some funds for future opportunities".
Pennon Group reportedly turned down a previous bid for Viridor from the same investors last year, although the company has for some time been eyeing a sale of its waste and recycling arm following a strategic review of its wider business announced last September.
Chris Loughlin, Pennon's chief executive, welcomed the deal. "The transaction is great news for shareholders as it recognises the strategic value that Pennon has developed and nurtured in Viridor over many years and accelerates the realisation of that value for shareholders," he said. "On completion of the transaction, Pennon will continue to focus on its sector-leading water and wastewater businesses and will consider further growth opportunities that create value for customers, employees and shareholders."
Under the terms of the sale, Planets UK Bidco has agreed to acquire 100 per cent of the share in Viridor for £3.7bn cash, as well as taking on the waste and recycling company's existing debt, which includes £300m in lease instruments, and £200m in liabilities primarily related to landfill operations.
The deal comes at a time of considerable change across both the water and waste industries, with the water sector recently pledging to move to net zero emission operations by 2030 and the waste and recycling sector expecting to be subject to a revamped policy regime once the UK fully leaves the EU.
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