A minority shareholder of Covanta Holding Corp (NYSE:CVA) has informed the US waste-to-energy (WtE) company that it will vote against its proposed USD-5.3-billion (EUR 4.48bn) acquisition by EQT Infrastructure.
Ecofin Advisors Ltd and its affiliates, together, control about 2.2 million shares of common stock of Covanta, representing a stake of some 1.7%. They have sent a letter to the company’s board of directors to inform them of their reasoning.
“The Company announcement on July 14, 2021 that it had entered into a definitive agreement to be acquired, was not at all surprising to us given the ongoing strategic review. However, we were very disappointed to read that the board endorsed the low offer price of USD 20.25 per common share. We believe that the offer price fails to capture the intrinsic value of Covanta and more importantly fails to capture the substantial value creation opportunities over the next few years,” the letter reads.
While EQT’s offer is a premium of about 37% to Covanta's unaffected share price of USD 14.86 on June 8, Ecofin believes that the proposal does not reflect the fact that the company is “on the cusp of a structural improvement in profitability, cash flow generation and indebtedness,” and is about to begin collecting the returns on past investments.
Ecofin also notes that the offered price values Covanta at 10.99 times its 2021 earnings before interest, taxes, depreciation and amortisation (EBITDA), based on a Bloomberg consensus, a multiple that is much lower than that of other companies in the waste management industry. It acknowledges that Covanta currently has an elevated beta, but points out that it should decline in the coming years.
“As the Company is on a very attractive growth and profitability path, with a much lower risk profile and attractive structural drivers over the medium to long-term, we are at a loss to understand why the Board would accept to sell the Company at a price more in line with the problematic past than the bright future and at a large discount to peers despite better relative attractiveness,” the letter adds.
Morristown, New Jersey-based Covanta operates 41 waste-to-energy plants in the US, Canada and Europe. Together, they process about 21 million tonnes of waste from municipalities and businesses each year, converting it into renewable power.
(USD 1.0 = EUR 0.845)
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