Waste Connections, Inc. (WCN) is strengthening its oilfield waste business by buying R360 Environmental Solutions, Inc. — a leading provider of non-hazardous oilfield waste management — and its subsidiaries for roughly $1.3 billion in cash. The acquisition is expected to consummate in the fourth quarter of 2012.
R360 Environmental Solutions provides non-hazardous oilfield waste management services to the natural resource producing areas in the U.S. The deal will provide Waste Connections with 26 facilities across the U.S. Further, it will add oilfield waste management services in the Permian, Bakken and Eagle Ford Basins.
Management expects the acquisition to add more than 400 basis points to the company’s consolidated earnings before interest, taxes, depreciation and amortization, driven by the higher margin and disposal oriented activities of R360 Environmental Solutions.
With the acquisition, the Exploration and Production (E&P) disposal activities of Waste Connections are expected to expand. Therefore, the company will have access to several new unconventional sites where R360 Environmental Solutions has increased drilling activities.
Earlier, in March 2012, Waste Connections completed the acquisition of the operations of Alaska Pacific Environmental Services Anchorage, LLC and Alaska Green Waste Solutions, LLC (Alaska Waste).
The acquisitions are in line with the strategy of Waste Connections which intends to expand its operations in potential, yet unexplored markets. Further, it augments the company’s product portfolio within the solid waste industry.
Waste Connections reported second-quarter 2012 adjusted earnings of 36 cents, in line with the Zacks Consensus Estimate. Revenues increased 5.3% to $410.7 million from $390.2 million in the year-ago quarter, matching the Zacks Consensus Estimate.
However, declines in recycling commodity values and increasing fuel prices may weigh on margins moving forward. Moreover, recent slowdown in the economy has also negatively affected municipal solid waste (MSW) volumes.
Based in Folsom, California, Waste Connections is an integrated solid waste services company that provides solid waste collection, transfer, disposal and recycling services in mostly secondary markets. The Company operates in 29 states and also provides intermodal services for the movement of containers in the Pacific Northwest.
Waste Connections retains a short-term Zacks #3 Rank (Hold). We have a long-term Neutral recommendation on the stock.
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