Contends That a Sale of the Environmental Solutions Division or the Entire Business Represent Best Paths Forward to Maximize Value for All Shareholders
Strongly Believes that GFL Environmental’s Board and Management Should Genuinely Consider All Inbound Third-Party Acquisition Offers
A full copy of the letter is below:
Attn: Board of Directors and Management
Dear Members of the Board and Management:
Not much externally has changed since we wrote to the Board roughly seven months ago in
But the Company’s persistent undervaluation hasn’t forestalled the Company’s largest shareholder –
The third-party likely leaked their interest to show that there is an alternate path for the Company’s shareholders that both creates immediate value and sets up the Company for long term success. As set forth below, we believe the sale of ES at a 14-15x EBITDA multiple,4 as rumored in the press, would have a multi-pronged benefit to the Company:
1. By our estimates, the sale of ES will result in minimal tax leakage and leave the Company with the lowest leverage in the broader North American waste industry at roughly ~1x before capital allocation.5
2. A sale of ES would create a solid-waste ‘pureplay’ when paired with the Company’s RNG/EPR/Tuck-in program that would likely have a better ‘go forward’ growth algorithm and potentially trade at a higher multiple than the Company’s often mentioned pure-play peer --- Waste Connections (“WCN”). Various sell-side reports have cited ‘NewCo’ would likely trade at approximately 15x PF 2025 EBITDA,6 but internally we wouldn’t be surprised if the Company could trade at 16-17x PF 2025 EBITDA with the right capital / margin structure – in line with WCN.7
3. GFL’s new business mix would be solidly US-centric and open up a path to a US domicile and listing. GFL has long been reviled by Canadian investors who eschew leverage and have historically been skeptical about the owner operated attitudes of the Company. While we understand the Company has publicly communicated the merit of joining the TSX60, we do not expect that to happen any time soon. We believe the US is where the Company belongs with more open-minded investors and a far deeper base of passive capital and opportunities for multi-index inclusion for which the Company would immediately qualify.
4. But most importantly, the sale of ES allows the Company to remove most, if not all, of the overhang from their lead sponsor,
In summary, a lower leverage pureplay listed / domiciled in
We cannot think of any reason why the Company would explore any other path than to sell its ES division. While we would be in favor of an ‘outright’ sale of the entire Company, we recognize the scope and scale of such a transaction. Given the minimal tax leakage, the Company does not lose much by doing a ‘two step’ take private in our view and leaves the door open to see if the Company can achieve a true public company cost of capital that a business of this quality merits.
While we understand that management has said publicly all options are on the table, we believe management’s preferred solution is a ‘sponsor-to-sponsor’ swap of public equity absent a sale of ES. This belief is driven by management’s historical focus on growth / perceived desire to run a larger business. We believe a ‘sponsor-to-sponsor’ sale accomplishes absolutely nothing and is detrimental to shareholders. A new sponsor might not actually be aligned with minority shareholders and would prefer the shares trade at a discount ahead of a future take private they may inevitably end up leading.
Let us remind you, the Board has a fiduciary obligation to maximize value for ALL shareholders and at this juncture, we could argue that there could be legal consequences for not pursuing real offers for all or some of the Company’s assets. We encourage the Company to finally do the right thing for minority AND majority shareholders and immediately engage a financial advisor to pursue a sale of the ES division or the entire Company.
We look forward to hearing from you.
Best Regards,
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3 Company filings.
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6 See for example: Jefferies,
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ContactsSource:For Investors : adam@adwcapital.com
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