Takeover’s Grow Under New Cash For Contracts

08 March 2010 Marsh Mills Plymouth

08 March 2010 Marsh Mills Plymouth (Photo credit: Wikipedia)

The Guardian reports that Biffa, which has contracts with many local councils, is the subject of a £520mn takeover offer from Clearbrook Capital, Chinook Urban Mining and JP Morgan.

This type of report seems to now have become a daily occurrence as more under the wire take overs are proposed! We have for many years criticised companies like Biffa that have taken over our public services with ” Public Finance Initiatives ” whereby it is a so-called partnership under the guise of public and private ownership! When in truth it is a simple way for successive governments to appease their voters and sponsors as to offer what has become known as ” Cash 4 Contracts” as we have witnessed with the G4’s debacle!

But following on from this comes an even more lucrative plan and that is the takeover of contracts offer by public funding, transferred into public finance initiative or service’s provided by one company! Whilst ownership is transferred into private hands by the vesting of interest into companies, such as ” Clearbrook Capital, JP Morgan or Chinook  Urban Mining! Upon  closer examination of these 3 alone we are able to understand the reason behind the takeover offer!

Firstly: Partners (GIP), the private equity duo that bought out UK waste services company Biffa almost four years ago for £1.23bn, are in talks to sell the business for nothing in return for any future gains from mergers.

That by the way is the former buy-out arm of HSBC and has been involved heavily with partners Goldman Sachs, so comes no surprise that a ” private equity firm” such as Clearbrook Capital should not be part of the syndicate of the three, tasked with capital raising.

Secondly: Chinook Urban Mining – Why urban you may ask but its reason is simply as they put it! The process of reclaiming compounds and elements from products, buildings and waste.As they believe our waste products, we throwaway each day contain rare earth minerals that by exacting certain processes can be extracted and make profits!

Also Biffa holds all the contracts for waste recycling and is ideally placed to enable a take over and use of their contracts to help the procedure! As they are deeply in debt they need a vast amount of funds and as Goldman Sachs states they were unable to sell the company!

As Biffa holds contracts with local authorities including Portsmouth city council, East Hampshire district and Winchester city council, and the Isle of Anglesey county council. Also they have debts and all previous attempts by Goldman Sachs to sell the company fell short, leaving the waste manager facing a race against time to repay £1.1bn of loans.

Thirdly: Enter – JP Morgan the bankers and of course and Montagu Private Equity and Global Infrastructure Partners who presently owned Biffa! Their company overview makes for interesting reading:

Company Overview:

Global Infrastructure Partners is a principal investment firm specializing in investments in infrastructure assets. It seeks to invest in energy with a focus on natural resources infrastructure and power and utilities; transportation with an emphasis on air transport infrastructure, freight railroad, and seaports; and water and waste with a focus on water distribution and treatment and waste management. The firm also seeks to invest globally with a sector focus on power generation and transmission, gas storage and pipelines, water assets, airports, air traffic control, ports, railroads, and toll roads.


So what does everyone including Biffa gain?

Well of course their contracts are purchased by the syndicate and this then repays their debts to all the councils named! Thus providing much-needed funds for cash-strapped councils! Let us not forget that these contracts were originally owned by the public or the taxpayer and they so far have not seen a profit from this original deal!

Of course ” Montagu Private Equity and Global Infrastructure Partners own it and reasons why they invested into this type of company! As is stated in Wikipedia – The company was taken private again in April 2008 by Waste Acquisition Co, a consortium of three private equity and investment companies. The deal valued Biffa at around £1.2 billion. 

Of course Biffa’s debts they now owe are not far short of this figure and need this deal!

So what about the history of these events! 

This came about as a result and the sale of ” Severn Trent Water Authority ” that was privatised and became ” Severn Trent” in 1989. Then in 1991 it acquired Biffa a leading waste management business.

Global Infrastructure Partners – Current assets include a 75% stake in Biffa Limited, a UK-based waste management company and as stated are willing to sell the business for ” nothing” in return for any future gains from mergers! Well this takeover that is being orchestrated will make sure they get their return and the upshot is the tax payer who originally owned these contracts will get nothing! Just looking at the capitalisation and turnover in 2005/06 Biffa made good profits, following being demerged from Severn Trent Plc.

In January 2007 the American side of Severn Trent Laboratories was sold to HIG Capital. 

So by 2008 the privatisation was complete and it would be a fully operational on the face of it profit-making company, that was ripe for the picking and valued at £1.2 billion when ” Global Infrastructure Partners” acquired their 75% stake!

But still not a penny for the taxpayers! 

The main companies in the group are Severn Trent Water and Severn Trent Services.Severn Trent Laboratories was rebranded as part of Severn Trent Services in 2010 to better streamline the company to give a single worldwide image, and not a series of separate organisations with different identities.

So when the guardian reported this story l read it with interest and especially this part – The offer was submitted last week to Pricewaterhouse Coopers, the advisers to the 76 banks and financial institutions that lent funds to Biffa’s current owners! The lenders have formed a steering committee comprising HSBC, GE Capital, Dexia and Prudential M&G to consider the approach. Anyone betting on who the other 72 others maybe and could one maybe be JP Morgan!

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