US ECOLOGY, INC. Item 8.01. Other Events
As previously announced, onFebruary 8, 2022 ,US Ecology, Inc. , aDelaware corporation ("US Ecology" or the "Company"), Republic Services, Inc., aDelaware corporation ("Republic Services"), andBronco Acquisition Corp. , aDelaware corporation and a wholly-owned subsidiary of Republic Services ("Merger Sub"), entered into Agreement and Plan of Merger (as the same may be amended, supplemented and modified from time to time, the "Merger Agreement"), which provides that, subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and intoUS Ecology , withUS Ecology continuing as the surviving company and a wholly-owned subsidiary of Republic Services (such transactions, collectively, the "Merger"). One of the conditions to the Merger under the Merger Agreement is the approval ofUS Ecology's stockholders. OnMarch 11, 2022 , in accordance with the rules and regulations of theSEC ,US Ecology filed a Preliminary Proxy Statement on Schedule 14A (the "Preliminary Proxy Statement") with theU.S. Securities and Exchange Commission (the "SEC") in order to solicit proxies in connection with an upcoming special meeting ofUS Ecology's stockholders to approve the Merger Agreement (the "Special Meeting").US Ecology subsequently filed, and commenced mailing with respect to, a Definitive Proxy Statement on Schedule 14A (the "Definitive Proxy Statement" and, together with the Preliminary Proxy Statement, the "Proxy Statement") with theSEC onMarch 29, 2022 . Commencing onMarch 15, 2022 , purported individual stockholders ofUS Ecology filed complaints in the United States District Courts for theSouthern District ofNew York , for theEastern District ofNew York , and for theEastern District ofPennsylvania , in the matters captionedRyan O'Dell v.US Ecology, Inc. , et al, No. 22-cv-2131 (S.D.N.Y., filedMar. 15, 2022 ) ("O'Dell"),Ray Pizzaro v.US Ecology, Inc. , et al, No. 22-cv-02144 (S.D.N.Y., filedMar. 15, 2022 ) ("Pizzaro"),Matthew Whitfield v.US Ecology, Inc. , et al, No. 22-cv-01515 (E.D.N.Y., filedMar. 18, 2022 ) ("Whitfield"),Lewis D. Baker v.US Ecology, Inc. , et al, No. 22-cv-01053 (E.D. Pa., filedMar. 18, 2022 ) ("Baker"), andTeresa McCurdy v.US Ecology, Inc. et al, No. 22-cv-01685 (E.D.N.Y., filedMar. 25, 2022 ) ("McCurdy," and together, the "Transaction Litigation"). The complaints in the Transaction Litigation name as defendants the Company and the members of the Board. The complaints in the Transaction Litigation generally allege that the preliminary proxy statement filed byUS Ecology with theSEC onMarch 11, 2022 , in connection with the Merger Agreement is materially incomplete and misleading by allegedly failing to disclose purportedly material information relating to the sale process leading to the proposed transaction, the Company's financial projections, and the analyses performed by theCo-Financial Advisors . Each of the Complaints asserts violations of Section 14(a) of the Exchange Act, Rule 14a-9 promulgated thereunder, and Section 20(a) of the Exchange Act. In addition, the complaint in the Pizzaro action also asserts a claim for breach of fiduciary duty by the members of the Board in connection with the approval of the Merger Agreement and the disclosures in the preliminary proxy statement, and a claim againstUS Ecology for aiding and abetting the alleged breaches of fiduciary duty. The Transaction Litigation seeks, among other things, an injunction of the proposed transaction, rescission of the Merger Agreement, a declaratory judgment that the Company and the Board violated the Exchange Act and Rule 14a-9 promulgated thereunder, damages, plaintiff's attorneys' fees and expenses, and any other relief the court may deem just and proper.
While
It is possible that additional similar complaints could be filed in connection
with the proposed transaction. If additional similar complaints are filed,
absent new or significantly different allegations,
In addition to the Transaction Litigation, the Company has received letters from four purported stockholders of the Company demanding additional disclosures related to the sale process leading to the proposed transaction, the Company's financial projections and the analyses performed by theCo-Financial Advisors . SUPPLEMENTAL DISCLOSURES
Without admitting in any way that the disclosures below are material or otherwise required by law, the Company makes the following amended and supplemental disclosures.
The following disclosures supplement the disclosures contained in the Proxy Statement and should be read in conjunction with the disclosures contained in the Proxy Statement, which should be read in its entirety. To the extent that the information set forth herein differs from or updates information contained in the Proxy Statement, the information set forth herein shall supersede or supplement the information in the Proxy Statement. All page references are to pages in the Definitive Proxy Statement, and terms used in this Current Report on Form 8-K, unless otherwise defined, have the meanings set forth in the Definitive Proxy Statement. For clarity, new text within restated disclosure from the Definitive Proxy Statement is presented in underlined text.
The section of the Definitive Proxy Statement entitled: "Background of Merger" is amended and supplemented as follows:
On page 30, the third full paragraph is amended and restated in its entirety as follows (new language underlined):
Meanwhile, the Company began to receive inbound indications of interest from potential transaction counterparties: OnDecember 11, 2020 , Party A, a private equity firm, delivered an unsolicited letter expressing an interest in acquiring 100% of the Company's common stock at a value of$46.60 per share, and onDecember 14, 2020 , Party B, a strategic buyer, delivered an unsolicited letter expressing an interest in acquiring 100% of the Company's common stock at a value range of$44.00-$46.00 per share.
On page 30, the fourth full paragraph is amended and restated in its entirety as follows (new language underlined):
In light of the inbound inquiries the Company had received regarding a potential strategic transaction, the Company engaged both Houlihan Lokey and Barclays, to provide financial advisory services in connection with any such strategic transaction, including, in each case and if requested by the Company, the delivery by Barclays or Houlihan Lokey (as applicable) of an opinion to the Board with respect to the fairness, from a financial point of view, to the Company's stockholders of the consideration to be offered in a particular strategic transaction to such stockholders. Barclays and Houlihan Lokey were retained asCo-Financial Advisors to the Company in connection with a potential strategic transaction involving the Company based on various factors, including each Co-Financial Advisor's industry expertise, qualifications and reputation with respect to financial advisory services and the Board's determination that retaining two experienced financial advisors would be in the best interests ofUS Ecology's stockholders.
On page 31, the fourth full paragraph is amended and restated in its entirety as follows (new language underlined):
OnAugust 31, 2021 , Party D's Executive Chairman and the Company's Chief Executive Officer held a discussion at an industry event during which Party D, a strategic buyer, disclosed receiving an unsolicited inbound communication from Party C presenting Party C's investment thesis on the Company and inquiring if Party D would have any interest in pursuing an acquisition of the Company. In this discussion, Party D indicated to the Company's Chief Executive Officer that Party D would not have an interest in pursuing a transaction with the Company. The Company's Chief Executive Officer later reported this communication to
the Board.
On page 31, the fifth full paragraph is amended and restated in its entirety as follows (new language underlined):
OnSeptember 7, 2021 , the Chief Executive Officer of Party B contacted the Company's Chief Executive Officer to discuss current industry trends and business challenges. During this discussion, Party B expressed continued interest in pursuing a transaction with the Company, but noted that Party B would likely need to pay a significant portion of the transaction consideration using its stock instead of cash, given Party B's recent announcement of another transaction. The Company's Chief Executive Officer later reported this communication to the Board.
On page 32, the first full paragraph is amended and restated in its entirety as follows (new language underlined):
OnOctober 22, 2021 , the Chief Development Officer of Republic Services contacted one of the Company's independent directors,Richard Burke , to inquire who Republic Services should contact to initiate a discussion regarding exploring a strategic transaction. The Chief Development Officer of Republic Services was a prior industry contact ofMr. Burke . Following this unsolicited outreach,Mr. Burke directed that the proper channel of communication be through the Company's Chief Executive Officer, and onOctober 23, 2021 , the respective Chief Executive Officers of the Company and Republic Services discussed, among other things, an overview of the Company's businesses, as well as the possible synergies that could result from an acquisition of the Company by Republic Services. The Company's Chief Executive Officer then communicated the content of the discussion to the Board by email onOctober 23, 2021 .
On page 32, the sixth full paragraph is amended and restated in its entirety as follows (new language underlined):
OnNovember 16, 2021 , the Company had an introductory meeting with Party E, a private equity firm, another party which had expressed an interest (unsolicited)in a potential transaction with the Company, to provide an overview of the Company's business.
On page 33, the first full paragraph is amended and restated in its entirety as follows (new language underlined):
OnNovember 29, 2021 , following the initial discussions with Party E, the Board met and discussed Party E's indication of interest. The Board authorized management to negotiate a nondisclosure agreement with Party E, but only on a non-exclusive basis because the Company was at that time in active discussions with other parties. At this meeting of the Board, the Board also established a transaction committee to oversee the Company's exploration of potential strategic alternatives, including, but not limited to, a potential transaction with Republic Services, Party E or any other interested party. The members of the committee were each "independent" under applicable Nasdaq listing standards, had no financial or other material relationships with any potential counterparty and were each selected by the Board based on their deep experience with merger and acquisition transactions. The transaction committee ("Transaction Committee") was comprised ofDaniel Fox ,Richard Burke ,Katina Dorton , and Glenn A. Einsenburg, withRichard Burke as chairman, and the goal of the Transaction Committee was to allow the Board to expeditiously and efficiently explore a potential merger or sale of, or other strategic transaction involving, the Company, to keep the Board fully informed and ultimately make a recommendation regarding any such transaction to the full Board. The Transaction Committee was not established due to any conflict of interest with any potential counterparty. At this meeting representatives of Dechert also made a preliminary report to the Board on their views of the potential antitrust risks that would arise in attempting to complete a transaction with various proposed counterparties, including Republic Services, Party A, Party B and Party E.
On page 33, the sixth full paragraph is amended and restated in its entirety as follows (new language underlined):
OnDecember 3, 2021 , Republic Services' Chief Development Officer reached out to one of the Company's independent directors,Richard Burke , seeking more clarity on how Republic Services and the Company could potentially move forward towards a negotiated transaction. In response, onDecember 8, 2021 , at the direction of the Transaction Committee and in consultation with the Company'sCo-Financial Advisors ,the Company's Chief Executive Officer contacted Republic Services' Chief Development Officer and expressed the view that, based on prior discussions with the Board, Republic Services would need to increase the valuation range stated in Republic Services'November 3, 2021 offer to a price of$50.00 per share or more in order for the Company to seriously entertain Republic Services' offer.
On page 34, the last sentence of the first full paragraph is amended and restated in its entirety as follows (new language underlined):
The Transaction Committee also reviewed the Company's financial projections, which are the same Projections described and set forth on pages 58 to 61 of this Definitive Proxy Statement under the heading "Projected Financial Information".
On page 35, the first full paragraph is amended and restated in its entirety as follows (new language underlined):
OnJanuary 11, 2022 , the Company and Republic Services executed a nondisclosure agreement, which, among other things, included a nine-month standstill obligation in favor of the Company which would fall away upon the announcement by the Company of the Company's entry into a definitive agreement with respect to a strategic transaction with a party other than Republic Services. Other than Party E and Republic Services, the Company did not enter into any other nondisclosure agreements during the period of time described in this section entitled "Background of the Merger".
On page 35, the first sentence of the fifth full paragraph is amended and restated in its entirety as follows (new language underlined):
OnJanuary 25, 2022 , the Chief Executive Officer of Republic Services submitted verbally to the Chief Executive Officer of the Company a revised proposal to acquire 100% of the Company's common stock at a value of$48.00 per share on an all-cash basis.
The section of the Definitive Proxy Statement entitled: "Opinions of
On pages 46, the table entitled "Enterprise Value as Multiple of Calendar Year 2022 Estimated EBITDA" is amended and restated in its entirety as follows (new line items are underlined):
Enterprise Value as a Multiple of Calendar Year 2022 Estimated EBITDA
Selected Comparable Companies EV /
14.0x
Clean Harbors, Inc. 9.5x
Harsco Corporation 8.2x
Heritage-Crystal Clean, Inc. 6.7x
Median 8.9x
Average 9.6x
Range 6.7x - 14.0x
Solid Waste Companies
Casella Waste Systems, Inc. 19.4x
Waste Connections, Inc. 17.2x
Waste Management, Inc. 13.9x
GFL Environmental Inc. 13.8x
Republic Services 13.5x
Median 13.9x
Average 15.6x
Range 13.5x - 19.4x
On page 48, the first table is amended and restated in its entirety as follows (new line items are underlined):
Specialty/Solid
Announcement Date Waste Acquiror Target EV / LTM EBITDA
Waste Progressive
Connections, Waste Solutions
January 2016 Solid Waste Inc. Ltd. 8.8x
Hennessy
Capital
Acquisition NRC Group
June 2018 Specialty Waste Corp. III Holdings, LLC 8.6x
Ecoserv
Industrial
November 2018 Specialty Waste The Company Disposal, LLC 9.2x
Waste Advanced
Management, Disposal
April 2019 Solid Waste Inc. Services, Inc. 10.7x
Harsco Clean Earth,
May 2019 Specialty Waste Corporation Inc. 9.6x
NRC Group
June 2019 Specialty Waste The Company Holdings Corp. 10.6x
Stericycle
Harsco Environmental
February 2020 Specialty Waste Corporation Solutions, Inc. 13.2x
Waste
Management,
Inc. / Advanced
GFL Disposal
Environmental Services, Inc.
June 2020 Solid Waste Inc. assets 8.8x
GFL
Environmental WCA Waste
August 2020 Solid Waste Inc. Corporation 10.5x
GFL Terrapure
Environmental Environmental
March 2021 Specialty Waste Inc. Ltd. 9.5x
Covanta Holding
July 2021 Solid Waste EQT AB Corporation 11.8x
Clean Harbors,
August 2021 Specialty Waste Inc. HydroChemPSC 10.9x
On page 48, the second paragraph under the disclosure entitled "Discounted Cash Flow Analysis" is amended and restated in its entirety as follows (new language is underlined): Barclays first calculated the estimated enterprise value of the Company using the discounted cash flow method, Barclays added (i) the Company's projected after-tax unlevered free cash flows for fiscal years 2022 through 2026, based on management projections, to (ii) the "terminal value" of the Company and any tax savings from the use of net operating losses, and discounted such amount to its present value using a range of selected discount rates. The utilization of net operating losses used by Barclays in this analysis is defined and set forth in the section of this Proxy Statement titled "Projected Financial Information" on pages 58 to 61. The after-tax unlevered free cash flows were calculated by taking the Adjusted EBITDA of the Company and (i) subtracting cash expenses, cash taxes and capital expenditures and (ii) adjusting for changes in working capital, in each case based on the management projections. The after-tax unlevered free cash flows used by Barclays in this analysis are defined and set forth in the section of this Proxy Statement titled "Projected Financial Information" on pages 58 to 61. The residual value of the Company at the end of the forecast period, or "terminal value," was estimated by selecting a range of perpetuity growth rates of 2.0% to 3.0%, which were derived by Barclays utilizing its professional judgment and experience. The range of after-tax discount rates of 8.5% to 9.5% was selected based on an analysis of the weighted average cost of capital of the Company, which was derived by application of the Capital Asset Pricing Model and took into account certain metrics including the unlevered beta of the Company and the capital structures of the selected comparable companies.
On page 49, the third full paragraph under the section entitled: "Present Value of Future Share Price Analysis" is amended and restated in its entirety as follows (new language is underlined):
Barclays then calculated a range of implied prices per share of Company common stock by (i) subtracting the projected amount of the Company's net debt as of each respective fiscal year end based on management projections, (ii) adding to such amount estimated future investments of approximately$12 million by the Company in a privately-held company, (iii) dividing such amount by the estimated fully diluted number of shares of Company common stock derived from management projections and (iv) adding to such future equity values per share of Company common stock the anticipated amount of annual dividends per share of Company common stock, as applicable, based on the management projections. The annual dividends and fully diluted number of shares for each fiscal year used in Barclays' analysis are defined and set forth in the section of this Proxy Statement titled "Projected Financial Information" on pages 58 to 61.
The section of the Definitive Proxy Statement entitled: "Opinions of
On page 55, the second sentence of the paragraph entitled: "Enterprise" is amended and restated in its entirety as follows (new language is underlined):
Enterprise. Houlihan Lokey performed a discounted cash flow analysis of the Company on an enterprise basis by calculating the estimated net present value of the projected unlevered, after-tax free cash flows of the Company and the estimated net present value of the terminal value of the Company, based on the Projections, in each case, including the Company's ROI Initiatives that are forecasted to be started in fiscal year 2022 and excluding net cash flows from the Company's ROI Initiatives that are forecasted to be started in fiscal year 2023 or fiscal year 2024; for further information, please refer to "Unlevered Free Cash Flow (Enterprise)" in the section of this Proxy Statement entitled "Projected Financial Information" beginning on page 58. Houlihan Lokey calculated terminal values for the Company by applying a range of perpetuity growth rates of 2.5% to 3.0%, selected based on Houlihan Lokey's professional judgment and experience, to the Company's fiscal year 2026 estimated unlevered, after-tax free cash flows. The net present values of the Company's projected future cash flows and terminal values were then calculated using discount rates ranging from 8.5% to 9.5%, based on an estimate of the Company's weighted average cost of capital, to determine an implied enterprise value reference range.
On page 55, the second sentence of the subsection entitled: "ROI Initiatives" is amended and restated in its entirety as follows (new language is underlined):
ROI Initiatives. Houlihan Lokey performed a discounted cash flow analysis of the Company's ROI Initiatives by calculating the estimated net present value of the projected unlevered, after-tax free cash flows of the Company's ROI Initiatives that are forecasted to be started in fiscal year 2023 or fiscal year 2024 and the estimated net present value of the terminal value of such ROI Initiatives, based on the Projections (the "ROI Initiatives Implied Value"); for further information, please refer to "Unlevered Free Cash Flow (ROI)" in the section of this Proxy Statement entitled "Projected Financial Information" beginning on page 58. Houlihan Lokey calculated terminal values for such ROI Initiatives by applying a range of perpetuity growth rates of 2.5% to 3.0%, selected based on Houlihan Lokey's professional judgment and experience, to such ROI Initiatives' fiscal year 2026 normalized unlevered, after-tax free cash flows. The net present values of such ROI Initiatives' projected future cash flows and terminal values were then calculated using discount rates ranging from 11.0% to 12.0%, based on an estimate of the cost of equity of (i) the Company and (ii) the selected companies listed below, to determine an implied value.
On page 55, the second full paragraph of the subsection entitled: "ROI Initiatives" is amended and restated in its entirety as follows (new language is underlined):
Houlihan Lokey then added the implied enterprise value reference range from the discounted cash flow analysis of the Company on an enterprise basis and the ROI Initiatives Implied Value, to determine a total implied enterprise value reference range for the Company. Houlihan Lokey then subtracted total debt and added cash and cash equivalents, the book value of the Company's long-term investments, as provided by Company management and each as ofDecember 31, 2021 , and the present value of the expected tax savings from the Company's net operating losses, as provided by Company management (calculated assuming a federal tax rate of 21.0% and using a discount rate range of 11.0% to 12.0%, based on an estimate of the Company's cost of equity), to derive an implied equity value reference range for the Company. The Company's cash and cash equivalents as ofDecember 31, 2021 , and the utilization of net operating losses of the Company are set forth in the section of this Proxy Statement titled "Projected Financial Information" on pages 58 to 61. The figures in the implied equity value reference range were then divided by the number of fully diluted shares ofUS Ecology common stock outstanding to calculate a reference range of implied equity values per share. The discounted cash flow analysis indicated an implied per share equity value reference range of$43.64-$60.63 , as compared to the proposed merger consideration of$48.00 per share in cash. On pages 55 - 56, the disclosure that begins with "The selected companies included the following:" and ends with "Selected Companies Analysis" is amended and restated in its entirety as follows (new line items and new language are underlined): The selected companies and the financial data reviewed included the following: Enterprise Value Multiples Enterprise Enterprise Enterprise Value / Value / Value / CY 2021E CY 2022E CY 2023E Adjusted Adjusted Adjusted Selected Companies EBITDA EBITDA EBITDA Clean Harbors, Inc. 9.8x 9.0x 8.6x Harsco Corporation 9.9x 9.1x 8.6x Heritage-Crystal Clean, Inc. 6.1x 7.2x 7.2x Stericycle, Inc. 15.4x 14.7x 12.7x Financial Metric Low High Median Mean CY 2021E Adjusted EBITDA 6.1x 15.4x 9.8x 10.3x CY 2022E Adjusted EBITDA 7.2x 14.7x 9.1x 10.0x CY 2023E Adjusted EBITDA 7.2x 12.7x 8.6x 9.3x Taking into account the results of the selected companies analysis and based on its professional judgment and experience, Houlihan Lokey applied the selected multiple ranges set forth in the table below to corresponding financial data for the Company based on the Projections, to calculate an implied enterprise value reference range. Houlihan Lokey then subtracted total debt and added cash and cash equivalents, the book value of the Company's long-term investments, as provided by Company management, with balance sheet information as ofDecember 31, 2021 , and the ROI Initiatives Implied Value, to derive an implied equity value reference range. The figures in the implied equity value reference range were then divided by the number of fully diluted shares ofUS Ecology common stock outstanding to calculate a reference range of implied values per share. The selected companies analysis indicated the implied per share equity value reference ranges set forth in the table below, as compared to the proposed merger consideration of$48.00 per share in cash. On pages 56 - 57, the disclosure that begins with "The selected transactions included the following:" and ends with "Selected Transactions Analysis" is amended and restated in its entirety as follows (new line items and new language are underlined):
The selected transactions and the financial data reviewed included the following: . . .
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