DEFA14A: Enviri Sells Clean Earth for $3B, Reshapes Future

Enviri Corporation announces the sale of its Clean Earth business to Veolia Environnement S.A. for $3 billion, significantly reducing debt and creating a new, financially healthier 'New Enviri' focused on Harsco Environmental and Rail.

Summary

• Enviri Corporation has signed an agreement to sell its Clean Earth business to Veolia Environnement S.A. for $3 billion.
• The proceeds from the sale will be used to pay down a significant portion of Enviri's debt and return cash to shareholders.
• Shareholders will also receive shares of stock in 'New Enviri,' which will comprise the Harsco Environmental and Harsco Rail businesses, supported by a corporate team.
• The transaction is expected to close in the middle to latter part of the second quarter of next year.
• The valuation received for Clean Earth is 18.5 times its cash earnings, which is the highest on a relative basis for any transaction in the specialty waste sector in the United States, surpassing the previous high of 17 times.
• The company's stock price has approximately doubled since early August, when it was trading in the $8 to $9 range, reflecting the value creation from this transaction.
• Russell Hochman, the current General Counsel, has been promoted to President and Chief Operating Officer of Enviri and will become the CEO of New Enviri upon the transaction's close, at which point current CEO Nick will leave the company.
• Clean Earth employees will join Veolia, a global environmental solutions company with $50 billion in revenues, becoming part of Veolia's North American business, which will make them the second-largest specialty waste company in the US.
• New Enviri will operate with a significantly healthier balance sheet and fewer constraints due to reduced debt.
• The company's strategic direction remains focused on environmental solutions, with Harsco Environmental and Harsco Rail positioned as market-leading businesses.

Sentiment

Score: 8

Explanation: The sentiment is highly positive due to the significant value unlocked for shareholders, the substantial debt reduction, and the strategic repositioning of the remaining businesses for future growth. While challenges in the rail business and the bittersweet nature of the divestiture are acknowledged, the overall financial and strategic outcomes are presented as overwhelmingly beneficial.

Positives

• The sale of Clean Earth for $3 billion represents a very high valuation of 18.5 times cash earnings, exceeding the previous industry high of 17 times for similar transactions.
• The transaction is tax-efficient, with no corporate-level tax on the gain from the sale of Clean Earth.
• A significant portion of Enviri's high debt will be paid down, resulting in a very healthy balance sheet for New Enviri and providing greater financial flexibility.
• The transaction has created substantial value for shareholders, with the stock price approximately doubling from $8-$9 in early August to current levels.
• Clean Earth employees will join Veolia, a $50 billion global market leader, offering tremendous career opportunities and making the combined entity the second-largest specialty waste company in the US.
• Employees of Harsco Environmental, Harsco Rail, and corporate will benefit from working for a company no longer burdened by high debt, offering more opportunities and fewer constraints.
• The Clean Earth business was sold for approximately three times what was paid for it (over $1 billion) in 2019-2020, demonstrating significant growth and value creation.
• New Enviri's businesses (Harsco Environmental and Harsco Rail) are market leaders with strong brands, believed to be near or at the bottom of their market cycles, indicating potential for future rebound.

Negatives

• The decision to sell Clean Earth is described as bittersweet, acknowledging the strong performance and contributions of the Clean Earth team.
• There are ongoing challenges in the Harsco Rail business that the company is actively working to address.
• The change associated with the transaction can be unsettling for some employees, despite management's assurances of positive outcomes.
• The company's return on capital invested in the Harsco Environmental business is currently lower than its cost of capital, with some large contracts yielding zero or negative returns.

Risks

• The occurrence of any event, change, or circumstance that could give rise to the right of one or multiple parties to terminate the agreements.
• The possibility that the Proposed Transaction does not close when expected, or at all, due to unreceived or unsatisfied regulatory, shareholder, or other approvals and conditions.
• The possibility that the Proposed Transaction may be more expensive to complete than anticipated due to unexpected factors or events.
• New Enviri's ability to successfully enter into new contracts and complete new acquisitions, divestitures, or strategic ventures in the contemplated timeframe, or at all.
• New Enviri's inability to comply with applicable environmental laws and regulations.
• New Enviri's inability to obtain, renew, or maintain compliance with its operating permits or license agreements.
• New Enviri having a smaller size and more limited resources than Enviri Corporation.
• The seasonal nature of New Enviri's business.
• Risks caused by customer concentration, fixed-price and long-term customer contracts (especially for complex engineered equipment), and the competitive nature of the industries.
• The outcome of any disputes with customers, contractors, and subcontractors.
• The financial condition of New Enviri's customers, including their ability to maintain credit availability.
• Higher than expected claims under New Enviri's insurance policies, or losses that are uninsurable or exceed existing coverage.
• Market and competitive changes, including pricing pressures, market demand, and acceptance for new products, services, and technologies.
• Changes in currency exchange rates, interest rates, commodity and fuel costs, and capital costs.
• New Enviri's ability to attract and effectively retain key management and employees, including due to unanticipated changes in demand, labor disputes, and increased operating costs from union organizations.
• New Enviri's inability or failure to protect its intellectual property rights from infringement.
• Failure to effectively prevent, detect, or recover from breaches in New Enviri's cybersecurity infrastructure.
• Changes in the worldwide business environment, including general economic and industry conditions and cyclical slowdowns impacting the steel and aluminum industries.
• Fluctuations in exchange rates between the U.S. dollar and other currencies.
• Unforeseen business disruptions due to changes in economic conditions, governmental laws and regulations (environmental, occupational health and safety, tax, import tariff), political instability, civil disobedience, armed hostilities, public health issues, or other calamities.
• Liability for and implementation of environmental remediation matters.
• Product liability and warranty claims associated with New Enviri's operations.
• New Enviri's ability to comply with financial covenants and obligations to financial counterparties.
• Outstanding indebtedness and exposure to derivative financial instruments that may be impacted by changes in interest rates.
• Tax liabilities and changes in tax laws.
• Changes in the performance of equity and bond markets that could affect pension plan valuations and accounting.
• Risk and uncertainty associated with intangible assets.

Future Outlook

New Enviri is positioned for success with a significantly healthier balance sheet due to substantial debt reduction. The company will focus on improving its return on capital invested in the Harsco Environmental business, addressing challenges in the Harsco Rail division, and continuing its commitment to environmental solutions across all operations. Management anticipates a reset and reimagining of the company, with a focus on operational improvements and leveraging existing strengths in sustainability.

Management Comments

• "We signed an agreement to sell Clean Earth for $3 billion to a very large global environmental solutions company named Veolia. They're based in France. And we will use that 3 billion dollars of proceeds to pay off a lot of our debt and also to return cash to our shareholders."
• "The valuation that we receive for Clean Earth is very high and its also tax efficient. So we're not paying any corporate level tax on the gain on the sale of Clean Earth, and so we have a lot of happy shareholders today."
• "The balance sheet of New Enviri will be very healthy. And that'll provide many opportunities for New Enviri and fewer constraints also. So again a very good result for in my strong opinion all employees at Enviri."
• "I certainly believe that the value of an Enviri share now is should be north of $20."
• "I've simply not seen in a five year period a business become so transformed and with a significant lift in its financial profile as the team has done in Clean Earth."
• "This is a real moment of celebration for everyone, for the Clean Earth team. We've enjoyed tremendously watching you grow and develop this incredible business."
• "For my colleagues at HE and Rail this is also an exciting time, as Nick said the money that we're getting from this transaction is quite significant... we're also using a significant amount of that money to give the remaining businesses a fresh start, right? A cleaner balance sheet, less debt to pay for and more financial flexibility."
• "As we move forward in New Enviri, we have a chance to reset, reimagine and reach our potential. And I'm really looking forward over the next few months to sitting with everyone, the leadership teams, traveling around, meeting all of you and hearing your ideas about what we can do with this reset."
• "We absolutely are committed to this story and continuing to tell the story for New Enviri, but even for rail, you know rail has a lot to talk about in terms of sustainability and benefiting the environment."

Industry Context

The sale of Clean Earth to Veolia Environnement S.A. positions Clean Earth to become part of a truly global environmental solutions leader with $50 billion in revenues. This combination will make Veolia's North American specialty waste business, including Clean Earth, the second-largest in the US. Veolia's complementary asset base, including hazardous waste incinerators and landfills, along with its global presence in diverse environmental services like desalination, offers Clean Earth customers and employees expanded capabilities and opportunities within a larger, more integrated global platform. This move reflects a broader consolidation trend in the specialty waste market.

Comparison to Industry Standards

• The sale of Clean Earth at 18.5 times cash earnings significantly exceeds the previous high valuation of 17 times for similar transactions in the specialty waste sector in the United States, indicating a premium valuation for the asset.
• Clean Earth's integration into Veolia's North American business is expected to create the second-largest specialty waste company in the US, enhancing its competitive position against national and global competitors.
• Veolia's global scale, with $50 billion in revenues and operations in over 50 countries, provides a robust platform for Clean Earth, offering broader resources and development programs compared to its previous standalone structure within Enviri.

Management Changes

Corporate Governance

Legal Proceedings

• The transaction is subject to an antitrust review by the Department of Justice (DOJ) under Hart Scott Rodino (HSR) regulations. This is a serious review, as Veolia is a competitor to Clean Earth, and discussions about integration are restricted until approval.

Stakeholder Impact

• **Shareholders:** Will receive cash proceeds and shares in New Enviri, benefiting from significant value creation (stock price doubling) and a tax-efficient sale.
• **Clean Earth Employees:** Will transition to Veolia, a global market leader, which is expected to offer tremendous career opportunities and a robust platform for development.
• **Harsco Environmental, Harsco Rail, and Corporate Employees:** Will remain with New Enviri, benefiting from a significantly healthier balance sheet, reduced debt, and increased financial flexibility, potentially leading to more investment opportunities and a more stable work environment.
• **Customers (Clean Earth):** Will benefit from Veolia's complementary asset base, global reach, and full-service environmental solutions, potentially leading to enhanced service offerings.
• **Customers (HE & Rail):** The company aims to improve return on capital and invest in projects to better fulfill contracts and maintain customer satisfaction, leveraging the new financial flexibility.

Next Steps

• Completion of annual operating plan (AOP) cycle for all divisions, including Clean Earth, until the transaction closes.
• Filing of IPO documents with the Securities and Exchange Commission (SEC) for New Enviri.
• Antitrust review with the Department of Justice (DOJ), also known as Hart Scott Rodino (HSR), to secure regulatory approval for the transaction.
• Development and execution of an integration plan between Clean Earth and Veolia post-closing.
• Leadership discussions and site visits by Russell Hochman to gather ideas for capital investment and strategic direction for New Enviri.
• Continued focus on addressing operational challenges and ETOs (Engineer-to-Order projects) within the Harsco Rail business.
• Ongoing efforts to boost return on capital invested in the Harsco Environmental business.

Key Dates

Recommendation

The filing details a highly accretive transaction where Enviri is divesting its Clean Earth business at a premium valuation (18.5x cash earnings, exceeding industry benchmarks). This sale significantly reduces the company's substantial debt burden, creating a 'New Enviri' with a healthy balance sheet and enhanced financial flexibility. The immediate positive market reaction, with the stock price doubling, underscores the value unlocked. While challenges in the rail business are acknowledged, the strategic repositioning, coupled with strong leadership transition and a clear focus on improving return on capital for the remaining environmental businesses, presents a compelling investment case for long-term value creation. The company is effectively resetting with a cleaner financial slate, making it an attractive opportunity for investors.

Keywords

Enviri, Clean Earth, Veolia Environnement, Harsco Environmental, Harsco Rail, Divestiture, Acquisition, Specialty Waste, Environmental Solutions, Debt Reduction, Spin-off, Corporate Restructuring, Shareholder Value, Financial Flexibility, Corporate Governance