London: The possibility that Biffa may be become the centrepiece of rival bids, elevated the share price on the London Stock Exchange yesterday, on a day of generally falling prices. Biffa shares gained over 4% in value before falling back slightly in Monday's market.
It has been widely reported that General Electric backed Global Infrastructure Partners, has approached Biffa with a possible bid, though Biffa have not commented on this.
An approach was also made to Biffa last November by a Montagu Private Equity and HgCapital consortium. At that time the approach increased the share price by over 24% to 275p, though the share price closed today at over 334p.
Montagu were also involved in the sale of Cory Environmental in March 2007, to a consortium of long term infrastructure investors consisting of ABN AMRO Global Infrastructure Fund, Finpro SGPS and Santander Private Equity, on behalf of Santander Infrastructure Funds I and II.
Legislative drivers
The attraction of the waste industry is related to the earnings potential of waste management companies in a market driven by legislation. The municipal waste market in the UK is subject to the compulsory requirements of the EC Landfill Directive which requires progressive reduction of biodegradable municipal wastes being landfilled.
Investment of around £10 billion has been estimated to be required in UK, to establish state-of-the-art waste treatment infrastructure to divert sufficient wastes from landfill to satisfy the Landfill Directive's requirements
In associated legislation, local authorities are the subject of a compulsory requirement to recycle and compost minimum percentages of household waste set by central Government under the Best Value Regime. Coupled with the influence of annual increases in landfill tax at £8 per tonne, Government guidance through the National Waste Strategy 2007 and Government capital aid through the private finance initiative (PFI) process – the effect is clear on the drive to recycle, compost, and recover value from municipal waste materials.
Central Government will also be trialling financial incentives for householders to recycle and compost more of their wastes, using up to five local authorities as part of the project next year.
Demerger
In April 2006, Biffa's parent water company Severn Trent said that it was planning to demerge its waste management business Biffa and in September of that year the company decided its terms for demerger.
At that time analysts welcomed the news, feeling that Biffa could become a bid target.