US Edition Although the company did not name the suitor, the £536m approach is known to have come from private equity firm Carlyle Group, as disclosed yesterday by The Daily Telegraph.
Carlyle will be granted access to Shanks’s books within days – a move that could start a bidding war for Britain’s only listed waste management company.
Shanks shares jumped 38.4 to 128½p after the company admitted it had received “a highly preliminary and unsolicited approach from a private equity group”.
It added: “After careful consideration and supportive discussions with Shanks’s two largest shareholders, the board believes that a cash offer of 150p per share or more would deliver an appropriate value to shareholders.”
Shanks’s two largest shareholders – Legal & General and Schroders, which together own 25pc of the group – were supportive of Carlyle’s approach. However, in recent days they have been persuaded by the recycling specialist’s management, led by chief executive Tom Drury, that the company could be worth more.
The pair are believed to have told Carlyle that they would give irrevocable undertakings to accept an offer of 150p a share, setting a benchmark for any potential rival offers.
Even so, it is expected that once a non-disclosure agreement has been signed, the private equity house will be allowed to conduct due diligence without committing to the higher price.
A 150p price tag would equate to seven times earnings before interest, tax, depreciation and amortisation. That is a discount to the 10 times earnings a consortium led by Montagu Private Equity paid last year in its £1.2bn takeover of larger rival Biffa.
Given its status as the only independently listed UK waste management group and the potential for recovery when the economic upturn comes, Shanks is likely to attract rival interest.
The most likely suitors are French industrial group Suez – which owns the Sita waste disposal business in the UK and which along with Terra Firma tried to buy Biffa – and AVR, a European waste management business owned by private equity rivals KKR and CVC.
While these might have synergies unavailable to Carlyle, it is thought that the US private equity firm, best known in the UK for its investment in defence contractor QinetiQ, is considering an innovative purchase structure.
It is believed it might use cash from both its buy-out fund and its infrastructure fund, which demand different rates of return. Such a structure could underpin a 135p-a-share offer.