DEFA14A: Enviri Sells Clean Earth for $3B, Spins Off New Enviri

Enviri Corporation announces the $3 billion sale of its Clean Earth business to Veolia Environnement S.A. and plans to spin off Harsco Environmental and Harsco Rail as 'New Enviri'.

Summary

• Enviri Corporation has signed an agreement to sell its Clean Earth business to Veolia Environnement S.A. for $3 billion.
• The divestiture is a result of a strategic review aimed at capturing the company's inherent value, which management believed was not reflected in its share price.
• The $3 billion sale price was at the very high end of expectations and surprised many investors.
• A significant portion of the $3 billion proceeds will be used to pay down company debt.
• Shareholders are expected to receive a cash distribution of $14.50 to $16.50 per share.
• Shareholders will also receive stock in the new public company, 'New Enviri', which will comprise the Harsco Environmental and Harsco Rail businesses.
• The transaction is structured to minimize tax liabilities and is expected to close in five or six months, pending U.S. government anti-competitive approval.
• Enviri's share price reacted positively to the news, trading up to approximately $17.50 from an $8-$9 range in early August and a $13 range prior to the announcement.
• Management estimates the combined value of the cash distribution and New Enviri stock to be 'north of $20 a share'.
• Clean Earth was acquired for approximately $1 billion (including Environmental Solutions from Stericycle) and is being sold for $3 billion, demonstrating significant value creation.
• During Enviri's ownership, Clean Earth's revenues improved about 30%, cash earnings more than doubled, and profit margins tripled.
• The acquisition multiple for Clean Earth was about 12 times earnings, while the divestiture multiple achieved was 18.5 times cash earnings.
• Nicholas F. Grasberger will remain CEO of Enviri until the deal closes, after which Russell Hochman will become CEO of New Enviri. Russell Hochman was recently promoted to President and Chief Operating Officer of Enviri.

Sentiment

Score: 9

Explanation: The filing details a highly successful divestiture of the Clean Earth business at a premium valuation, significantly exceeding market expectations. This transaction enables substantial debt reduction and a considerable cash return to shareholders, while also spinning off the remaining Harsco Environmental and Harsco Rail businesses into a new entity, 'New Enviri,' with a conservative capital structure and strong future prospects. The strategic repositioning and improved financial flexibility for New Enviri suggest a very positive outlook for the company's strategic direction and shareholder value.

Positives

• The sale of Clean Earth for $3 billion significantly exceeded investor expectations, demonstrating strong value realization.
• The transaction will lead to a substantial reduction in the company's debt burden.
• Shareholders are set to receive a significant cash distribution of $14.50 to $16.50 per share.
• Shareholders will also receive stock in the new public company, New Enviri, which will have a conservative capital structure and healthy cash flow prospects.
• Enviri created substantial value, acquiring Clean Earth for approximately $1 billion and divesting it for $3 billion.
• Clean Earth's financial performance improved significantly under Enviri's ownership, with revenues up 30%, cash earnings more than doubled, and profit margins tripled.
• The divestiture multiple of 18.5 times cash earnings is considerably higher than the acquisition multiple of 12 times earnings.
• New Enviri's Harsco Environmental and Harsco Rail businesses are market leaders globally with strong brands and are expected to have increased financial flexibility and focus.
• Clean Earth employees will join Veolia Environnement S.A., the largest global environmental services firm, which is well-capitalized and offers attractive professional growth opportunities.
• The company's share price saw a significant increase from $8-$9 to $17.50 following the strategic review and transaction announcement.
• Management projects the total value for shareholders, including cash and New Enviri stock, to be 'north of $20 a share'.

Negatives

• The decision to sell Clean Earth, while financially beneficial, was not the original strategic plan and caused some sadness.
• The transaction structure is described as 'somewhat complicated' due primarily to tax considerations and the spin-off process.
• The Harsco Rail business has 'chewed up a lot of cash flow and added significantly to our debt' in recent years, highlighting past operational challenges.

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 between Enviri Corporation and Veolia.
• The possibility that the Proposed Transaction does not close when expected, or at all, due to required regulatory, shareholder, or other approvals and conditions not being received or satisfied on a timely basis.
• 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 those related to complex engineered equipment, and the competitive nature of the industries in which New Enviri will operate.
• 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 insurance 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 disruptions associated with 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 in which New Enviri will conduct business.
• Unforeseen business disruptions due to changes in economic conditions, governmental laws and regulations (environmental, occupational health and safety, tax, import tariff standards), 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.
• The outstanding indebtedness and exposure to derivative financial instruments to which New Enviri will be subject, potentially 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 the valuation of assets in New Enviri's pension plans and accounting for pension assets, liabilities, and expenses.
• Risk and uncertainty associated with intangible assets.

Future Outlook

New Enviri, comprising Harsco Environmental and Harsco Rail, is expected to operate with a conservative capital structure and generate healthy cash flows. The rail business is projected to become cash positive in 2027-2028, with 2026 being the last year for significant cash input into rail contracts. Management plans to actively market the New Enviri story to investors to achieve a share price near the $20 threshold, emphasizing the upside potential of these market-leading global businesses.

Management Comments

• "We announced on Friday that we've signed an agreement with a very large French global environmental company to sell them Clean Earth for $3 billion."
• "The $3 billion price was at the very high end of expectations, and even though many investors expected us to announce a transaction at some point, you can see in how the share price reacted on Friday to our news that no one expected us, or very few expected us, to yield $3 billion in the sale of Clean Earth."
• "We are going to pay off a lot of our debt with that $3 billion. We're also going to return $14.50 to $16.50 per share in cash to our shareholders."
• "As we look at the value of the cash distribution from the Clean Earth proceeds and the value of New Enviri, we certainly see value north of $20 a share."
• "It's a very good result for Clean Earth employees. Clean Earth will be joining the largest global environmental services firm in the world, a very impressive organization focused on sustainability."
• "I also believe that those in New Enviri will be in a better position and that we will not be subject to the same capital constraints that we've had the last few years."
• "We spent about a $1 billion buying Clean Earth and Environmental Solutions, and here we are a few years later selling it for $3 billion."
• "While we paid an acquisition multiple of earnings of about 12 times to build the Clean Earth platform, we received 18 1/2 times cash earnings in the divestiture of Clean Earth, so an awful lot of value was created over the period in which we owned Clean Earth."
• "I think he [Russell Hochman] is just the ideal person to succeed me as the as the CEO of this company."
• "I think we will have, as Nicholas said, more financial flexibility, more focus on those businesses. We have big plans for both of them."

Industry Context

The sale of Clean Earth to Veolia Environnement S.A., described as the largest global environmental services firm with 50 billion euros in revenue and operations in 50-60 countries, places Clean Earth within a leading, sustainability-focused organization. The specialty waste industry, where Clean Earth operates, has become increasingly attractive to investors during Enviri's ownership, indicating strong market demand and growth potential. The spin-off of Harsco Environmental and Harsco Rail creates a new entity focused on market-leading global businesses in environmental and rail services, allowing for greater specialization and financial flexibility within their respective sectors.

Comparison to Industry Standards

• Enviri acquired Clean Earth and Environmental Solutions at an acquisition multiple of approximately 12 times earnings.
• The divestiture of Clean Earth achieved a significantly higher multiple of 18.5 times cash earnings, indicating a strong market valuation for specialty waste assets and successful value creation by Enviri.
• Veolia Environnement S.A., the acquirer, is highlighted as the largest global environmental services firm with 50 billion euros in revenue, providing a benchmark for scale and market leadership in the environmental sector.

Management Changes

Stakeholder Impact

• **Shareholders:** Will receive a significant cash distribution ($14.50-$16.50 per share) and stock in the new public company, New Enviri, with an estimated total value north of $20 per share, indicating substantial financial benefit.
• **Clean Earth Employees:** Will transition to Veolia Environnement S.A., the largest global environmental services firm, which is expected to offer attractive professional opportunities and capital for growth within a sustainability-focused organization.
• **New Enviri Employees (Harsco Environmental & Harsco Rail):** Will be part of a more focused company with a conservative capital structure, increased financial flexibility, and dedicated investment in their growth, potentially leading to enhanced opportunities.
• **Creditors:** The company's debt will be significantly paid down with the transaction proceeds, improving its financial health and credit profile.

Next Steps

• Close the Clean Earth divestiture and New Enviri spin-off transaction within the next five to six months, pending regulatory approval.
• Market the 'New Enviri' story to investors in the coming weeks and months to achieve a share price near the $20 threshold.
• Russell Hochman will share his vision and strategy for growth for New Enviri with the team in the coming weeks, likely after the holiday period.
• Begin planning for 'day one readiness' to provide transition services (TSA) for Veolia North America for approximately 6 months.
• Continue to maintain transparency and address questions from the corporate team.

Key Dates

Recommendation

The divestiture of Clean Earth at a premium valuation of $3 billion, significantly exceeding market expectations, is a strong positive. This transaction enables substantial debt reduction and a considerable cash return to shareholders, while also spinning off the remaining Harsco Environmental and Harsco Rail businesses into a new entity, 'New Enviri,' with a conservative capital structure and strong growth prospects. Management projects a total shareholder value 'north of $20 a share' compared to the current trading price of around $17.50, indicating potential upside. The strategic repositioning and improved financial flexibility for New Enviri suggest a favorable long-term outlook, making it an attractive investment.

Keywords

Enviri, Clean Earth, Veolia, divestiture, spin-off, Harsco Environmental, Harsco Rail, M&A, environmental services, waste management, corporate finance, shareholder value, debt reduction, strategic review, capital structure, CEO transition