Funds hit out at help for rival's bid

Waste Management chief executive Kim Ellis. Picture / Martin Sykes

Waste Management is facing renewed controversy over its planned merger with Transpacific after disclosures that its executives are helping the Australian company bid for a rival.

Fund managers say Waste Management should be focused on getting the best deal for its shareholders rather than working to further the interests of a firm that is still a competitor.

ING chief investment officer Rebecca Thomas said: "It looks as if they are throwing in the towel. They have been behaving as if [the merger] is already a done deal, they should be focused on us."

Another fund manager said: "How can the management and the board be seen as independent, when they are already working on behalf of Transpacific's shareholders?"

Fisher Funds managing director Carmel Fisher said: "It is not appropriate for the Waste Management team to be providing their expertise to a competitor. We believe they should not be assisting until the deal is done."

Transpacific wants to buy Australian waste group Cleanaway, which was put up for sale by services giant Brambles Industries.

Waste Management's Australian head Gary Saunders is spending around 40 per cent of his time helping Transpacific on this potential acquisition.

As many as three other executives are helping on the deal, while Waste Management chief executive Kim Ellis said he had spent "a few days" working with Transpacific over the last three weeks.

Transpacific will pay Waste Management $8 million for the advice. The sum is dependent on Transpacific succeeding in its bid for Cleanaway. It will not have to pay if its merger with Waste Management goes ahead or the New Zealand company decides to walk away from the merger.

The fee is equal to the $8 million penalty Waste Management will have to pay to Transpacific if one of its directors does not recommend the merger or promotes a competing transaction. Waste Management will also have to pay this break fee if shareholders do not endorse the merger.

Ellis said he saw no conflict at all with the deal, especially since the chances of Waste Management beating Transpacific to the punch were small.

"It is not an issue. [The contract] is probably the highest return on investment that we have ever had in this company's history."

The incident is the latest in a series of controversies over the deal that have included the merger terms, which would see Waste Management shareholders get $8.64 for every share they own, as well as its structure.

Since Transpacific and Waste Management agreed to merge, the Australian company's shares have surged by more than 50 per cent to give it a market value of almost A$2 billion.

Waste Management's shares have risen by 23 per cent to last night's close of $8.60. The difference has sparked talk that Waste Management shareholders may not be getting full value.

Those concerns, however, have eased slightly since Waste Management last week decided to pay a special dividend of 54 cents a share to make use of its tax credits. A Grant Samuel independent appraisal of the merger says the deal is fair and above an appropriate valuation range of $7.24 and $8.21 a share.

Shareholders have also complained that the deal, although structured as a merger, is in reality a takeover because they are not been offered shares in the merged entity. They say the deal is structured as a merger in a bid to avoid the protections that would normally be provided by the Takeovers Code.

* In a submission to the Takeovers Panel, Brook Asset Management has called for the closure of what it calls a loophole in New Zealand regulations that allows deals such as the one proposed by Transpacific and Waste Management.

* Love triangle

Waste Management
New Zealand's largest waste collector. Value, $865m.
Has agreed to merge with Transpacific in a deal worth $8.64 a share.

Transpacific
Australian. Value, around A$2b
Agreed to merge with Waste Management and now wants to buy Cleanaway

Cleanaway
Operations in United Kingdom, Australia and New Zealand.
Put up for sale last year by parent Brambles. Value, A$700-$900m.