Item 8.01. Other Events.
As previously disclosed, onJuly 14, 2021 ,Covanta Holding Corporation , aDelaware corporation (the "Company") entered into an Agreement and Plan of Merger (as it may be amended and modified from time to time, the "merger agreement") withCovert Intermediate, Inc. aDelaware corporation ("Parent") andCovert Mergeco, Inc. , aDelaware corporation and wholly owned subsidiary of Parent ("Merger Sub"), providing for, subject to the satisfaction or waiver of specified conditions, the acquisition of the Company by Parent at a price of$20.25 per share, in cash. Upon the terms and subject to the conditions of the merger agreement, Merger Sub will be merged with and into the Company (the "merger"), with the Company surviving the merger as a wholly owned subsidiary of Parent.
On
In connection with the merger agreement and the transaction contemplated thereby, ten lawsuits (the "Lawsuits") have been filed by purported Company stockholders against the Company and members of the Board. The ten complaints are captioned as follows: O'Dell v.Covanta Holding Corporation , et al., Case No. 1:21-cv-7061 (S.D.N.Y.); Raul v.Covanta Holding Corporation , et al., Case No. 1:21-cv-07225 (S.D.N.Y.); Waterman v.Covanta Holding Corporation , et al., Case No. 1:21-cv-07245 (S.D.N.Y.); Colomberti v.Covanta Holding Corporation , et al., Case No. 1:21-cv-04859 (E.D.N.Y.); Walker v.Covanta Holding Corporation , et al., Case No. 1:21-cv-01340 (D. Del.); Whitfield v.Covanta Holding Corporation , et al., Case No. 2:21-cv-04200 (E.D. Pa.); Bushansky v.Covanta Holding Corporation , et al., Case No. 2:21-cv-17427 (D.N.J.); Halberstam v.Covanta Holding Corporation , et al., Case No. 2:21-cv-17453 (D.N.J.); Ryan v.Covanta Holding Corporation , et al., Case No. 1:21-cv-1344 (D. Del.); Jones v.Covanta Holding Corporation , et al., 1:21-cv-07980 (S.D.N.Y.). OnSeptember 1, 2021 , the Company also received a draft unfiled complaint from a purported stockholder and onSeptember 9, 2021 the Company received a demand letter from a purported stockholder regarding the proposed merger (the "Demands"). In general, the Lawsuits and Demands allege that the defendants violated federal securities laws, and specifically Sections 14(a) and 20(a) of the Securities Exchange Act of 1934, as amended, because the definitive proxy statement allegedly omits or misstates material information. One Demand further generally alleges potential breaches of the Company's board of directors' fiduciary duty of disclosure underDelaware law. The Lawsuits and Demands seek, among other things, injunctive relief preventing the consummation of the merger, unspecified damages, and attorneys' fees. The Company and the other named defendants believe that no supplemental disclosures are required under applicable laws; however, to avoid the risk of the Lawsuits and Demands delaying the merger and to minimize the expense of defending the Lawsuits and Demands, and without admitting any liability or wrongdoing, the Company is making certain disclosures below that supplement and revise those contained in the definitive proxy statement. The definitive proxy statement should be read as part of, and in conjunction with, the disclosures set forth in this current report on Form 8-K. To the extent that information in this current report on Form 8-K differs from or updates information contained in the definitive proxy statement, the information in this current report on Form 8-K shall supplement or modify the information in the definitve proxy statement.
Supplemental Disclosures
The Company is making the following supplemental disclosures to the definitive proxy statement in connection with its response to the Lawsuits and Demands. The Company believes that no further disclosure is required to supplement the definitive proxy statement under applicable law. Nothing in this supplemental disclosure shall be deemed an admission of the legal necessity or materiality of any of the disclosures set forth herein. Capitalized terms used but not otherwise defined herein have the meaning given to those terms in the definitive proxy statement. All page references are to the definitive proxy statement. The disclosure in the section entitled "Background of the Merger", beginning on page 39 of the definitive proxy statement, is hereby modified by inserting the new text underlined in the below portions of such section. Over the course of the process to explore a sale of the CES business, at the request of the Company, Houlihan Lokey contacted 62 strategic and financial parties with respect to a potential sale of the CES business, including Party A, Party E (as defined below) and EQT. The Company entered into confidentiality agreements with 53 strategic and financial parties interested in evaluating the CES business. None of these confidentiality agreements contain "don't-ask, don't waive" standstill provisions. Houlihan Lokey contacted EQT as part of this process onDecember 23, 2020 . EQT declined to sign a confidentiality agreement in connection with the process, but indicated to Houlihan Lokey that it would be interested in potentially acquiring the entire Company. -------------------------------------------------------------------------------- OnFebruary 15, 2021 , the Board held a virtual meeting at which Messrs. Simpson, Mulcahy and Kenyon were also present.Mr. Ranger provided an update on the strategic review in general and the process to explore the sale of the CES business in particular, noting that 53 strategic and financial parties had entered into confidentiality agreements and that the Company's management team given presentations to more than 20 of those parties.Mr. Ranger also reported that the Company had received two unsolicited expressions of interest to purchase the entire Company from Party A and EQT, and reviewed with the Board the terms of the Initial EQT Proposal.Mr. Ranger expressed his view that both parties were credible potential buyers, but said that he viewed the price reflected in the Initial EQT Proposal as too low.Mr. Ranger noted that the Company's management team had done a significant amount of work in connection with the strategic review, including evaluating the potential sale of the CES business. Given the existing unsolicited expressions of interest in an acquisition of the entire Company, and the possibility of others to come,Mr. Ranger reported that the executive committee recommended that the Board consider engagingBofA Securities to conduct a structured process to explore a sale of the entire Company as a potential alternative to management's strategic plan, to run in parallel with the existing process with respect to the CES business.Mr. Ranger reviewed discussions withBofA Securities , including their qualifications, the terms on which it proposed to serve as the Company's financial advisor, andBofA Securities' proposed approach with respect to exploring a potential sale of the Company, including potential buyers identified byBofA Securities .Mr. Kenyon then provided an overview of the Board's fiduciary obligations in the context of a potential sale of the entire Company. The Board discussed the potential value that might be realized through the implementation of the strategic plan developed and outlined by the Company's management team relative to the potential value of a sale of the entire Company. The Board also discussed the potential risks and benefits associated with the strategic plan, including execution risks associated with sales of assets or material lines of business, compared to the potential risks and benefits associated with a single transaction to sell the entire Company. The Board viewed the valuation estimated in the strategic plan as a "best case" outcome, which assumed no issues with execution. The Board then discussed how to manage a process to evaluate a sale of the entire Company while also managing the process for the potential sale of the CES business, concluding that running simultaneous processes would provide a greater opportunity for price discovery. Thereafter, the Board authorized the executive committee to explore strategic transactions, including a potential sale of the entire Company, and to engageBofA Securities as the Company's financial advisor in connection therewith. Houlihan Lokey remained engaged as the Company's financial advisor in connection with the sale of the CES business, but was not engaged in connection with the matters discussed at theFebruary 15, 2021 meeting, including the potential sale of the entire Company. OnJune 16, 2021 ,BofA Securities provided to EQT and Party D an instruction letter requesting final binding offers for an acquisition of the Company byJuly 7, 2021 . At that point, because Party B had stopped actively engaging in the process and had not responded to inquiries fromBofA Securities seeking to confirm that Party B remained interested in a potential transaction, the Company, with input fromBofA Securities , determined that it was not appropriate to provide Party B with a copy of the instruction letter without evidence of its continued interest. The disclosure in the section entitled "Forward-Looking Financial Information", beginning on page 54 of the definitive proxy statement, is hereby modified by replacing the second full paragraph on page 56 of the definitive proxy statement with the text below. The North American unlevered free cash flows were computed as follows, with all figures attributable to such North American waste-to-energy operations and as provided by the Company's management:
--------------------------------------------------------------------------------
The disclosure in the section entitled "Forward-Looking Financial Information", beginning on page 54 of the definitive proxy statement, is hereby further modified by replacing the tables and third full paragraph on page 56 of the definitive proxy statement with the tables and text below.
H2 (US$ in millions) 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E Adjusted EBITDA(1)$ 234 $ 492 $ 509 $ 530 $ 541 $ 559 $ 573 $ 583 $ 600 $ 613 Less: Depreciation & Amortization ($ 109 ) ($ 218 ) ($ 221 ) ($ 224 ) ($ 228 ) ($ 225 ) ($ 229 ) ($ 232 ) ($ 234 ) ($ 237 ) Less: Stock-Based Compensation ($ 13 ) ($ 26 ) ($ 26 ) ($ 27 ) ($ 27 ) ($ 28 ) ($ 28 ) ($ 29 ) ($ 30 ) ($ 30 ) Adjusted EBIT$ 112 $ 248 $ 262 $ 278 $ 286 $ 306 $ 316 $ 322 $ 337 $ 346 Less: Taxes ($ 31 ) ($ 69 ) ($ 73 )
(
$ 81 $ 178 $ 189 $ 200 $ 206 $ 220 $ 227 $ 232 $ 243 $ 249 Plus: Depreciation & Amortization$ 109 $ 218 $ 220 $ 224 $ 227 $ 224 $ 228 $ 231 $ 233 $ 236 Plus: Tax Savings from Net Operating Losses$ 16 $ 35 - - - - - - - - Less: Change in Net Working Capital$ 2 ($ 12 )$ 4 $ 0 ($ 6 )$ 2 ($ 13 ) ($ 5 ) ($ 3 ) ($ 11 ) Less:North America Capital Expenditures ($ 67 ) ($ 134 ) ($ 146 ) ($ 136 ) ($ 133 ) ($ 118 ) ($ 133 ) ($ 133 ) ($ 128 ) ($ 131 ) North American Unlevered Free Cash Flows$ 140 $ 285 $ 267 $ 288 $ 295 $ 328 $ 309 $ 326 $ 345 $ 342
(1) "Adjusted EBITDA" is defined as earnings before interest, provision for
income taxes, and depreciation and amortization expense, adjusted for
stock-based compensation, loss on extinguishment of debt, service concession
expense, parts expiry valuation adjustment, and other non-recurring expenses.
The European levered free cash flows were computed by taking the Company's contributions to the Company's equity investments in its projects in theUnited Kingdom andIreland as an outflow in cash and by taking distributions from such investments as an inflow in cash. H2 (US$ in millions) 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E Contributions ($ 60 ) ($ 230 ) ($ 40 ) ($ 6 ) - - - - - - Distributions$ 15 $ 50 $ 57
The disclosure in the section entitled "The Merger-Opinion ofBofA Securities, Inc. beginning on page 56 of the definitive proxy statement is hereby amended by:
Amending and restating the last paragraph on page 58 as follows:
Environmental Services Industry
• Waste Management, Inc. • Republic Services, Inc. • Waste Connections, Inc.
--------------------------------------------------------------------------------
• Stericycle, Inc. • Clean Harbors, Inc. • Harsco Corporation • US Ecology, Inc. IPP Industry • Vistra Corp. • NRG Energy Inc.
Amending and restating the first full paragraph on page 59 as follows:
BofA Securities reviewed, among other things, the enterprise values for each of the selected companies and for the Company, calculated by multiplying the closing share price of each applicable company as ofJuly 9, 2021 by the number of fully-diluted shares outstanding of the applicable company (determined on a treasury stock method basis based on information in the public filings of the applicable company), and adding to (or subtracting from, as applicable) the result the amount of the applicable company's net debt (or net cash) (defined as debt, preferred equity and non-controlling interest (as applicable) less cash, cash equivalents and marketable securities (as applicable)), as a multiple ofWall Street analyst consensus estimates of earnings before interest, taxes, depreciation and amortization ("EBITDA") for each of calendar years 2021 and 2022 for the applicable company (referred to in this section as "2021E EV / EBITDA" and "2022E EV / EBITDA", respectively). Financial data of the selected companies were derived from their public filings and publicly availableWall Street research analysts' estimates published by FactSet as ofJuly 9, 2021 . Financial data of the Company were derived from the financial projections and equity information provided by the management of the Company. The overall low to high 2021E EV / EBITDA multiples observed for the selected companies were (i) 9.2x to 18.7x for the environmental services companies (with an average of 13.0x) and (ii) 9.0x to 12.7x for the IPP companies (with an average of 10.9x). The overall low to high 2022E EV / EBITDA multiples observed for the selected companies were (i) 8.0x to 17.3x for the environmental services companies (with an average of 12.1x) and (ii) 6.5x to 7.0x for the IPP companies (with an average of 6.8x).BofA Securities noted that the 2021E EV / EBITDA multiple observed for the Company was 9.9x and that the 2022E EV / EBITDA multiple observed for the Company was 9.1x, in each case, based on the financial projections.
Adding in the below paragraph and table above the first paragraph on page 60:
The results of this review were as follows:
Environmental Services Industry Selected Public Company 2021 EV / EBITDA 2022EV / EBITDA Waste Management, Inc. 14.5x 13.7x Republic Services, Inc. 13.6x 12.9x Waste Connections, Inc. 18.7x 17.3x Stericycle, Inc. 15.1x 14.2x Clean Harbors, Inc. 9.8x 9.2x Harsco Corporation 9.2x 8.0x US Ecology, Inc. 10.1x 9.1x Average 13.0x 12.1x IPP Industry Selected Public Company 2021 EV / EBITDA 2022EV / EBITDA Vistra Corp. 12.7x 6.5x NRG Energy Inc. 9.0x 7.0x Average 10.9x 6.8x
--------------------------------------------------------------------------------
Amending and restating the first paragraph on page 60 as follows:
Based onBofA Securities' review of the enterprise values to EBITDA multiples for the selected companies and the Company and on its professional judgment and experience,BofA Securities applied a 2021E EV / EBITDA multiple reference range of 10.0x to 11.0x to Company management's estimates of the Company's calendar year 2021 EBITDA, adjusted by the management of the Company for stock-based compensation expense, service concession expense, part expense valuation adjustment, equity investment adjustment to proportional EBITDA and non-recurring items, asset write-offs / impairments and other one-time items (which we refer to as "adjusted EBITDA"), as reflected in the financial projections, and a 2022E EV / EBITDA multiple reference range of 9.0x to 10.0x to Company management's estimates of calendar year 2022 adjusted EBITDA as reflected in the financial projections to calculate ranges of implied enterprise values for the Company.BofA Securities then calculated implied equity value reference ranges per share of Company common stock (rounded to the nearest$0.25 ) for the Company by subtracting from the resulting ranges of implied enterprise values it calculated an estimate of the net debt of the Company of$2,522 million as ofJune 30, 2021 (calculated as debt, less cash (including short term restricted funds held in trust), as ofJune 30, 2021 ), as provided by the management of the Company, and dividing the result by approximately 138 million, the number of fully diluted-shares of the Company common stock outstanding as ofApril 23, 2021 (calculated on a treasury stock method basis, based on information provided by the management of the Company). This analysis indicated the following approximate implied equity value reference ranges per share of Company common stock (rounded to the nearest$0.25 ), as compared to the merger consideration:
Amending and restating the first paragraph on page 61 as follows:
BofA Securities reviewed, to the extent publicly available, financial information relating to the following 29 selected transactions involving 17 acquisitions of publicly traded environmental services and 12 acquisitions of publicly traded IPP companies listed in the table below thatBofA Securities considered generally relevant for purposes of its analysis (collectively, the "selected transactions").
Removing in full the two tables on page 61.
Amending and restating the first paragraph on page 62 as follows.
For each of these selected transactions,BofA Securities reviewed the enterprise values implied for each target company based on the consideration payable in the selected transaction, as multiples of estimates of the target company's last twelve months EBITDA, or "LTM EBITDA", as of the announcement of the relevant transaction and based on publicly available information at that time. The overall low to high enterprise value to LTM EBITDA multiples of the target companies in the environmental services selected transactions were 6.2x to 11.6x (with an average of 8.8x). The overall low to high enterprise value to LTM EBITDA multiples of the target companies in the IPP selected transactions were 5.7x to 9.6x (with an average of 8.0x).
Adding in the below paragraph and two tables below the first paragraph on page 62:
The results of this review were as follows:
Environmental Services Selected Transactions
EBITDA Date Acquiror Target Multiple(1) 2/7/2020 Harsco Corporation ESOL Topco LLC
(Environmental Solutions Business of Stericycle) N/A
GFL Environmental N/A 4/15/2019 Waste Management Advanced Disposal Services 10.3x
9.6x 6/6/2018 Investor Consortium Cory Riverside Energy N/A
6.2x
11.6x 11/19/2015 EnergySolutions Inc Waste Control Specialists LLC N/A 12/19/2014 Republic Services Inc Tervita LLC N/A 6/2/2014 HanKore Environment Tech Group Ltd China Everbright Water Investments Ltd N/A 4/22/2014 Stericycle Inc Psc Environmental Services LLC N/A
--------------------------------------------------------------------------------
4/7/2014 US Ecology Inc Environmental Quality Co 8.6x 3/3/2014 Beijing Capital Group Ltd Transpacific Industries Group Ltd 8.6x 4/24/2013 EQT Partners AB Synagro Technologies Inc N/A 4/18/2013 Triton Advisers Ltd Befesa Medio Ambiente SA 9.5x 1/7/2013 Energy Capital Partners Energy Solutions 6.9x 10/29/2012 Clean Harbors Safety-Kleen Inc 8.0x Average 8.8x
(1) "N/A" indicates transactions for which there is not sufficient publicly
available information to determine an EBITDA Multiple. IPP Selected Transactions EBITDA Date Acquiror Target Multiple 10/30/2017 Vistra Energy Corp. Dynegy Inc. 7.4x 8/18/2017 Energy Capital Partners LLC Calpine Corp. 8.2x 6/3/2016 Riverstone Holdings LLC Talen Energy Corp. 6.6x 2/25/2016 Dynegy/ECP Engie US Merchant Portfolio 9.0x 7/20/2015 Talen MachGen 7.6x 8/22/2014 Dynegy Equipower 7.2x 10/18/2013 NRG Edison Mission Energy 9.5x 7/22/2012 NRG GenOn 9.6x 4/21/2010 Calpine Conectiv 9.3x 4/11/2010 Reliant Mirant 5.7x 2/26/2007 Investor Consortium TXU 8.4x 10/2/2005 NRG Texas Genco 7.5x Average 8.0x
Amending and restating the second paragraph on page 62 as follows.
Based onBofA Securities' review of the enterprise values to LTM EBITDA multiples for the selected transactions and on its professional judgment and experience,BofA Securities applied an enterprise value to LTM EBITDA multiple reference range of 9.0x to 11.5x to Company management's estimates of adjusted EBITDA for the twelve-month period endedJune 30, 2021 , as reflected in the financial projections, to calculate a range of implied enterprise values for the Company.BofA Securities then calculated an implied equity value reference range per share of Company common stock (rounded to the nearest$0.25 ) for the Company by subtracting from this range of implied enterprise values an estimate of the net debt of the Company of$2,522 million as ofJune 30, 2021 (calculated as debt, less cash, as ofJune 30, 2021 ), as provided by the management of the Company, and dividing the result by approximately 138 million, the a number of fully-diluted shares of Company common stock outstanding as ofApril 23, 2021 (calculated on a treasury stock method basis, based on information provided by the management of the Company). This analysis indicated the following approximate implied equity value reference ranges per share of Company common stock (rounded to the nearest$0.25 ), as compared to the merger consideration:
Amending and restating the fourth paragraph on page 62 as follows.
BofA Securities performed a discounted cash flow analysis of the Company to calculate a range of implied present values per share of Company common stock utilizing estimates of the standalone, unlevered, after-tax free cash flows the Company expects to generate from WtE operations located inNorth America over the period fromJuly 1, 2021 throughDecember 31, 2030 based on the financial projections.BofA Securities calculated terminal values for the Company (excluding equity investments in WtE projects outside ofNorth America and the non-perpetuity plants) of$184 million by applying a range of assumed perpetuity growth rates of 1.5% to 2.5%, based onBofA Securities' professional judgment and experience, to the unlevered free cash flows (excluding unlevered free cash flows the Company was expected to generate from certain client-owned plants that management of the Company has directedBofA Securities to assume have definite terms of operation (which we refer to as the "non-perpetuity plants")) in the year ending onDecember 31, 2030 .BofA Securities then calculated implied enterprise values for the Company by discounting to present value as ofJune 30, 2021 , the unlevered free cash flows and the terminal values for the Company (excluding equity investments in WtE projects outside ofNorth America and the non-perpetuity plants), utilizing the mid-period discounting convention, and using discount rates ranging from 6.25% to 7.25%, which were based on an estimate of the Company's weighted average cost of capital, derived using the capital asset pricing model, which took into account, among other things, risk free rate, levered beta, and historical equity risk premium, and adding to these ranges (i) the present value of the levered free cash flows the Company was expected to generate from equity investments in WtE projects outside ofNorth America over the period fromJuly 1, 2021 throughDecember 31, 2030 discounted toJune 30, 2021 , utilizing the mid-period discounting convention, and using discount rates ranging from 9.50% to 12.50%, which were based on an estimate of the Company's cost of equity, derived using the capital asset pricing model, and an assumed perpetuity growth rate of 2%, based onBofA Securities' professional judgment and experience, applied to the levered free cash flows in the year ending onDecember 31, 2030 , and (ii) the present value of the unlevered free cash flows the Company was expected to generate from the non-perpetuity plants over the period fromJanuary 1, 2031 through the expected end of operations of such plants, as per Company management's judgment, discounted toJune 30 2021 , utilizing the mid-period discounting convention, and using discount rates ranging from 6.25% to 7.25%, which were based on an estimate of the Company's weighted average cost of capital, derived using the capital asset pricing model.BofA Securities then calculated implied equity value reference ranges per share of Company common stock (rounded to the nearest$0.25 ) for the Company by deducting from the ranges of enterprise values the Company's projected net debt of$2,522 million as ofJune 30, 2021 (calculated as debt, less cash, as ofJune 30, 2021 ), as provided by Company management, and dividing the result by approximately 138 million, the a number of fully-diluted shares of Company common stock outstanding as ofApril 23, 2021 (calculated on a treasury stock . . .
© Edgar Online, source