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Houston, Texas based Waste Management, has agreed to sell its waste to energy subsidiary, Wheelabrator Technologies to an affiliate of energy focused private equity firm Energy Capital Partners (ECP) for $1.94 billion in cash.

Wheelabrator owns or operates 17 waste to energy facilities and four independent power-producing facilities in the U.S. that Waste Management said process over 7.5 million tons (6.8 million tonnes) of waste and have a combined electric generating capacity of 853 MW.

The waste to energy business’s other assets include has four ash monofill landfills, three transfer stations and an ongoing development and construction project in the UK (See WMW Story).

“This transaction aligns with our goal of driving shareholder value by maximising our focus on our core business and reducing earnings volatility related to electricity sales,” explained David P. Steiner, president  and chief executive officer of Waste Management.

During 2013, Waste Management said that Wheelabrator generated approximately $845 million in total revenue. However, back in February this year WM attributed, in part, its fourth quarter loss on the back of rising revenues to its 2013 year-end impairment testing, which resulted in a $483 million impairment charge to its waste to energy goodwill.

This was due to the its view that projected long-term energy prices and disposal volumes into the plants will not dramatically improve from current levels (See WMW Story).

In conjunction with the sale, Waste Management (NYSE:WM) said that it will enter into a long-term agreement to supply waste to certain Wheelabrator facilities upon closing.

“Waste Management’s strong waste supply capabilities well complement ECP’s deep experience in power generation,” commented Tyler Reeder, an ECP partner.

Shareholder value

Waste Management explained that it intends to use the net proceeds from the transaction to drive incremental shareholder value by acquiring assets related to the core business and repurchasing shares, while maintaining a strong balance sheet.

“If we use the net proceeds solely to repurchase shares and repay debt, we expect up to two cents accretion to our 2015 diluted earnings per share,” said Steiner. “If we can identify core business acquisitions that would be more accretive than buying back shares, we will pursue those opportunities.

“We believe there will be core business assets available at reasonable prices that would meet our criteria.  Consequently, we would expect that the use of proceeds will include a combination of accretive acquisitions, share repurchases and debt repayment,” he continued.

The transaction is subject to Federal Energy Regulatory Commission (FERC) approval and other customary closing conditions, and is expected to close in late 2014.

Barclays and Centerview Partners served as financial advisors to Waste Management on this transaction.

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