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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13E-3
RULE 13E-3 TRANSACTION STATEMENT
(PURSUANT TO SECTION 13(E) OF THE SECURITIES EXCHANGE ACT OF 1934)
WASTE MANAGEMENT INTERNATIONAL PLC
(NAME OF ISSUER)
WASTE MANAGEMENT, INC.
(NAMES OF PERSONS FILING STATEMENT)
ORDINARY SHARES OF 10P EACH
AMERICAN DEPOSITARY SHARES, EVIDENCED BY
AMERICAN DEPOSITARY RECEIPTS,
EACH REPRESENTING TWO ORDINARY SHARES
(TITLE OF CLASS OF SECURITIES)
94090610 (AMERICAN DEPOSITARY SHARES)
(CUSIP NUMBER OF CLASS OF SECURITIES)
GREGORY T. SANGALIS, ESQ.
GENERAL COUNSEL
WASTE MANAGEMENT, INC.
1001 FANNIN, SUITE 4000
HOUSTON, TEXAS 77002
TELEPHONE: (713) 512-6200
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSONS AUTHORIZED TO RECEIVE NOTICES
AND COMMUNICATIONS ON BEHALF OF PERSONS FILING STATEMENT)
COPIES TO:
CHARLES W. MULANEY, JR., ESQ.
GARY P. CULLEN, ESQ.
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM (ILLINOIS)
333 WEST WACKER DRIVE
CHICAGO, IL 60606
TELEPHONE: (312) 407-0700
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS
OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
This statement is filed in connection with (check the appropriate box):
a.[_] The filing of solicitation materials or an information statement subject
to Regulation 14A [17 CFR 240.14a-1 to 240.14b-1], Regulation 14C [17
CFR 240.14c-1 to 240.14c-101] or Rule 13e-3(c) [(S) 240.13e-3(c)] under
the Securities Exchange Act of 1934.
b.[_] The filing of a registration statement under the Securities Act of 1933.
c.[_] A tender offer.
d.[X] None of the above.
Check the following box if the soliciting materials referred to in checking
box (a) are preliminary copies: [_]
CALCULATION OF FILING FEE*
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TRANSACTION VALUATION: AMOUNT OF FILING FEE:
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$260,574,562 $52,114
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*Estimated solely for purposes of computing the filing fee. The transaction
valuation was determined by multiplying 23,215,362, the number of
outstanding American Depositary Shares ("ADSs"), by 2, the number of
Ordinary Shares represented by each ADS, and then by multiplying that
number by the product of (Pounds)3.45, the per Ordinary Share
consideration, and $1.6267 = 1(Pounds), the currency exchange rate of US
dollars to pounds sterling as published in the Wall Street Journal on
August 4, 1998. The filing fee was determined by multiplying such valuation
by 1/50 of 1%.
[_] Check box if any part of the fee is offset as provided by Rule 0-11 (a)
(2) and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form or
Schedule and the date of its filing.
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INTRODUCTION
This Rule 13e-3 Transaction Statement on Schedule 13E-3 (the "Transaction
Statement") filed pursuant to Section 13 (e) of the Securities Exchange Act of
1934, as amended, relates to the proposal (the "Proposal") in respect of Waste
Management International plc, a company incorporated with limited liability
and registered in England and Wales (the "Company"), pursuant to which the
Company would become an indirect, wholly-owned subsidiary of Waste Management
Holdings, Inc. ("Old WMI"), a Delaware corporation (formerly known as Waste
Management, Inc.) and the holder indirectly of approximately 80 percent of the
outstanding share capital of the Company and, as a result of the Merger (as
described below), an indirect, wholly-owned subsidiary of WMI (as defined
below). Pursuant to the Proposal, holders of the approximately 20 percent
outstanding share capital of the Company not currently owned by Old WMI and
its affiliates would receive 345p in cash for each ordinary share, par value
10p per share (the "Ordinary Shares") held (the "Sterling Consideration") or,
if they elect to receive US dollars (the "Dollar Election") the US dollar
equivalent thereof calculated by converting the Sterling Consideration into US
dollars at the mid-point spot rate for conversion of pounds sterling into US
dollars at 4:00 pm (London time) on the Effective Date (as defined below),
derived from the WM Reuters page showing such rate (the "Dollar Consideration"
and, together with the Sterling Consideration, the "Ordinary Shares
Consideration"). The exchange rate for converting from the Sterling
Consideration to the Dollar Consideration is referred to herein as the "Dollar
Exchange Rate". Pursuant to the Proposal, holders of American Depositary
Receipts ("ADRs") evidencing ADSs (each representing two Ordinary Shares) will
receive in cash the US dollar equivalent of 690p for each ADR, calculated
using the Dollar Exchange Rate (the "ADRs Consideration").
The Proposal will be implemented by means of a Scheme of Arrangement (the
"Scheme") under Section 425 of the United Kingdom Companies Act 1985 (the "UK
Companies Act"). The terms and conditions of the Proposal are set forth in
"Item 4--Terms of the Transaction". See also the Scheme of Arrangement
Document dated [ ], 1998 (the "Scheme Document") which is attached hereto as
Schedule A. The Scheme Document is being sent pursuant to the UK Companies Act
to holders of Ordinary Shares. The following responses and cross-references
are supplied pursuant to General Instruction D to Schedule 13E-3 and show the
locations in the Scheme Document of the information required to be included in
response to the items of this Transaction Statement. Relevant information
contained in the Scheme Document is incorporated by reference in response to
specific items in this Transaction Statement.
The implementation of the Scheme will require, among other things, the
approval of holders (the "Scheme Shareholders") of Scheme Shares (as defined
below) at the Court Meeting (as defined below) which has been convened by
order of the High Court of Justice in England and Wales (the "English High
Court") (at which the approval of a majority in number of those voting
representing three-fourths in value of the Scheme Shares voted, either in
person or by proxy, will be required) and the passing of a special resolution
by holders of Ordinary Shares at the Extraordinary General Meeting (described
below). Scheme Shares are the Ordinary Shares outstanding at the date of the
Scheme Document, other than Ordinary Shares in which WMI and its subsidiaries
are beneficially interested as at the date of the Scheme Document
(collectively, the "WMI Group Shares"), together with: (i) any additional
Ordinary Shares which may be issued after the date of the Scheme Document but
before 5:30 pm (London time) on the business day immediately before the Court
Meeting and (ii) any further Ordinary Shares which may be issued after the
period referred to in clause (i) above but before 5:30 pm (London time) on the
business day immediately before the Hearing Date (as defined below) and on
terms that they are bound by the Scheme. Holders of WMI Group Shares are not
entitled to vote at the Court Meeting, but are entitled to vote at the
Extraordinary General Meeting. In order to become effective, the Scheme must
then be sanctioned by the English High Court at the Court Hearing (as defined
below) and an office copy of the Order of the English High Court must be
registered with the Registrar of Companies in England and Wales by no later
than December 31, 1998.
Holders of ADRs will be entitled to direct the Depositary (as defined below)
to vote on the Scheme pursuant to the terms of the Deposit Agreement dated as
of April 1, 1992, among Citibank, N.A., as Depositary, the Company and the
holders from time to time of ADRs (the "Deposit Agreement"). The applicable
terms of the
1
Deposit Agreement and the means by which holders of ADRs may vote on the
Scheme are set forth in "Item 11--Contracts, Arrangements or Understandings
with Respect to the Issuer's Securities". Holders of ADRs who wish to attend
the Court Meeting or the Extraordinary General Meeting should take steps to
present their ADRs for cancellation to the Depositary, as such steps are
described in the Depositary Notice (as defined below) to which this
Transaction Statement is attached, so that they become registered holders of
Ordinary Shares prior to 5:30 pm (London time) on October 5, 1998, two days
before those meetings.
As discussed below in "Item 7--Purpose(s), Alternatives, Reasons and
Effects", directors of the Company who are independent of WMI and its
subsidiaries, other than the Company and its subsidiaries, (the "Independent
Directors") negotiated the terms and conditions of the Proposal on an arm's
length basis with Old WMI. The Independent Directors, who have been so advised
by KPMG Corporate Finance, a division of KPMG ("KPMG Corporate Finance"),
consider that the terms of the Proposal are fair and reasonable so far as the
Scheme Shareholders are concerned. In providing financial advice to the
Company, and in particular the Independent Directors, in relation to the terms
of the Proposal, KPMG Corporate Finance has taken into account the Independent
Directors' commercial assessments of the Proposal.
The Independent Directors unanimously recommend that Scheme Shareholders
approve the Scheme and vote in favor of the resolutions necessary to implement
it. The Independent Directors intend to vote their own beneficial holdings to
approve the Scheme at the Court Meeting and in favor of the special resolution
to be proposed at the Extraordinary General Meeting. The holders of WMI Group
Shares have confirmed that they intend to vote in favor of the special
resolution to be proposed at the Extraordinary General Meeting. Accordingly,
should the holders of WMI Group Shares so vote, the special resolution will be
passed.
The Proposal was also approved by the Board of Directors of Old WMI (the
"Old WMI Board"). In making its determination, the Old WMI Board received a
fairness opinion from Merrill Lynch & Co., Inc. ("Merrill Lynch") that the
transaction is fair to Old WMI.
On March 10, 1998, Old WMI entered into a definitive merger agreement (the
"Merger Agreement") with USA Waste Services, Inc. ("USA Waste") which
provided, subject to the satisfaction of the conditions contained therein,
that a wholly-owned subsidiary of USA Waste would be merged with and into Old
WMI (the "Merger"). On July 16, 1998, the Merger was consummated. Upon
consummation of the Merger, Old WMI became a direct, wholly-owned subsidiary
of USA Waste and changed its name to Waste Management Holdings, Inc. and USA
Waste changed its name to Waste Management, Inc. The newly-renamed Waste
Management, Inc. is referred to herein as "WMI".
The description of the implementation of the Scheme speaks as of the time
that this Transaction Statement will be sent to Scheme Shareholders.
SPECIAL FACTORS
THE INFORMATION CONTAINED IN ITEMS 7, 8 AND 9 HEREOF
CONSTITUTE SPECIAL FACTORS, AND SPECIAL CONSIDERATION
SHOULD BE GIVEN THERETO
ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION
(a) The name of the issuer is Waste Management International plc, a company
incorporated in 1991 with limited liability and registered in England and
Wales, and the address of its registered office is 3 Shortlands, Hammersmith
International Centre, London, W6 8RX, England.
(b) The equity securities which are the subject of the Rule 13e-3
transaction are the Company's Ordinary Shares, par value 10p per share, and
ADSs evidenced by ADRs (each ADS representing two Ordinary Shares).
2
An aggregate of 375,273,456 Ordinary Shares, including Ordinary Shares
represented by 23,215,362 ADRs, were outstanding as of December 31, 1997. The
Company had 422 holders of record of the Ordinary Shares and 584 holders of
record of the ADRs as of July 28, 1998.
(c) The Ordinary Shares are traded on the London Stock Exchange under the
symbol "WMG". The ADRs are traded on the New York Stock Exchange ("NYSE")
under the symbol "WME". The following table shows the per share high and low
sales price as reported on the London Stock Exchange for the Ordinary Shares
and on the NYSE for the ADRs for the periods indicated and for June 26, 1998
(the last full trading day prior to the day on which the Proposal was publicly
announced). Holders of Ordinary Shares and ADRs are encouraged to obtain
current market quotations for Ordinary Shares and ADRs.
MARKET PRICE OF MARKET PRICE OF
ORDINARY SHARES (P) ADRS ($)
------------------- ----------------
HIGH LOW HIGH LOW
------------------- -------- -------
1996
First Quarter...................... 344.0 311.0 10 7/8 9 1/8
Second Quarter..................... 395.0 319.0 12 1/8 9 3/4
Third Quarter...................... 365.0 291.0 11 1/8 9
Fourth Quarter..................... 292.5 243.0 9 1/8 7 7/8
1997
First Quarter...................... 260.0 223.0 8 1/2 7
Second Quarter..................... 282.0 237.5 9 3/8 7 1/2
Third Quarter...................... 279.0 251.5 9 3/8 7 15/16
Fourth Quarter..................... 261.0 176.0 8 1/2 5 3/4
1998
First Quarter...................... 228.0 176.0 7 11/16 5 7/16
June 26 (at close)................. 247.5 8 5/8
(d) The Company has not paid dividends with respect to Ordinary Shares or
ADRs. Payment of dividends is governed by the Master Dividend Agreement,
discussed in "Item 16--Additional Information--Certain Agreements".
(e) During the past three years, neither the Company, WMI nor Old WMI has
made an underwritten public offering of Ordinary Shares or ADRs for cash which
was registered under the Securities Act of 1933 or exempt from registration
thereunder pursuant to Regulation A.
(f) Neither the Company, WMI nor Old WMI has purchased any Ordinary Shares
or ADRs since the commencement of the Company's second full fiscal year
preceding the date of this Transaction Statement.
ITEM 2. IDENTITY AND BACKGROUND
The Parties
This Transaction Statement is being filed by WMI. The principal executive
offices of WMI are located at 1001 Fannin, Suite 4000, Houston, Texas 77002.
The telephone number of WMI is (713) 512-6200.
WMI, together with its subsidiaries, including Old WMI, is a leading
international provider of waste management services. WMI is the largest waste
management services company in North America and has an extensive network of
landfills, collection operations and transfer stations throughout North
America. Through Wheelabrator Technologies Inc. ("WTI"), WMI is a leading
developer of facilities for, and provider of services to, the trash-to-energy
and waste-fuel powered independent power markets. The Company is a leading
international provider of waste management services and conducts substantially
all of the waste management operations of WMI located outside of North
America.
3
The Company provides a wide range of solid and hazardous waste management
services, including the collection, transportation, storage, treatment,
recycling and disposal of waste. It develops and operates water and wastewater
treatment facilities and it performs certain related environmental services.
Such services are integrated to varying degrees in different markets depending
on facilities, regulatory limitations and the stage of market penetration. The
Company currently operates in 18 countries.
On March 10, 1998, Old WMI entered into the Merger Agreement with USA Waste
which provided, subject to the satisfaction of the conditions contained
therein, that a wholly-owned subsidiary of USA Waste would be merged with and
into Old WMI. On July 16, 1998, the Merger was consummated. In connection with
the Merger, a Joint Proxy Statement/Prospectus was sent to the shareholders of
each of Old WMI and USA Waste (the "Joint Proxy Statement"). The Joint Proxy
Statement contains descriptions of the businesses of WMI, Old WMI and USA
Waste. See "Item 16--Additional Information--Incorporation of Certain
Information by Reference" for information on how to obtain copies of the Joint
Proxy Statement and other reports, proxy statements and other information
filed with the Securities and Exchange Commission (the "SEC") by WMI, Old WMI
and USA Waste.
The Directors and Officers of WMI and the Company
Material occupations, positions, offices or employments during the last five
years and the citizenship of directors and officers of WMI are set forth in
Schedule B attached hereto.
Material occupations, positions, offices or employments during the last five
years and the citizenship of directors and officers of the Company are set
forth in Schedule C attached hereto.
Pursuant to the disclosure requirements of Schedule 13E-3 under the Exchange
Act, neither the Company, WMI nor any of their officers or directors has
during the last five years been convicted in a criminal proceeding (excluding
traffic violations or similar misdemeanors).
Pursuant to the disclosure requirements of Schedule 13E-3 under the Exchange
Act, neither the Company, WMI nor any of their officers or directors was
during the past five years a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and as a result of such
proceeding was or is subject to a judgment, decree or final order enjoining
further violations of, or prohibiting activities subject to, federal or state
securities laws or finding any violation of such laws.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS
Background of the Proposal
In January 1995, the Old WMI Board reviewed and approved several management
recommendations arising out of a comprehensive review of its long-range
strategic plans. Among the conclusions reached were that Old WMI should seek,
over time and as appropriate, to: (i) reduce its level of capital
expenditures, particularly in the area of business acquisitions, and seek to
generate increasing levels of free cash flow which could be used to repurchase
common stock or repay debt, as appropriate, (ii) adopt a more balanced
approach to revenue growth, emphasizing organic growth over acquisitions,
(iii) consider divestitures of business units which were not closely
integrated with Old WMI's core waste management services business or which
were identified as under-performing, (iv) identify opportunities to reduce
operating costs through adoption of standardized best operating practices and
through reengineering certain business processes and systems to take increased
advantage of economies of scale and (v) simplify Old WMI's corporate
structure.
Pursuant to these long-range strategic plans, Old WMI periodically
considered the acquisition of the publicly held minority interests in its
various subsidiaries. As a result, since 1995 Old WMI has acquired the
publicly held shares in the following of its majority-owned subsidiaries:
Chemical Waste Management, Inc. ("CWM"), Rust International Inc. ("Rust") and
WTI. Over the course of the last two years, the Old WMI
4
Board, from time to time, considered acquiring the outstanding public shares
of the Company (the "Minority Shares") as another step in eliminating Old
WMI's public subsidiary structure.
Following the January 1995 meeting of the Old WMI Board and from time to
time through the end of 1996, Dean L. Buntrock and Phillip B. Rooney, then
Chairman of the Board and President of Old WMI, respectively, discussed with
certain members of the Board of Directors of the Company (the "Company Board")
the possibility that Old WMI might make a proposal to acquire all of the
Minority Shares. In January 1997, senior management of Old WMI requested the
members of the Audit Committee of the Company Board (the "Audit Committee"),
to retain independent financial and legal advisors to advise the Audit
Committee in the event that the Old WMI Board authorized the making of a
proposal to acquire the Minority Shares. The Audit Committee, comprised solely
of directors who are independent of Old WMI and its subsidiaries (other than
the Company and its subsidiaries (collectively, the "Company Group")), has and
had full authority to act on behalf of the Company Board in connection with
any transaction involving a conflict or potential conflict of interest with
Old WMI or any of its subsidiaries (other than the Company Group). Following
that approach, the Independent Directors did take advice from financial and
legal advisors. In March 1997, however, Mr. Buntrock informed Sir William
Barlow, the Chairman of the Audit Committee that the Old WMI Board had
determined not to make any proposal to acquire the Minority Shares because the
Old WMI Board had concluded that a purchase of the Minority Shares would not
be the most effective use of Old WMI's available cash resources at that time.
No further discussions were held.
In June 1997, the Old WMI Board considered a going private transaction with
respect to the Company, but rejected moving forward at that time in favor of
making a going private proposal only in respect of WTI.
On January 30, 1998, Robert S. Miller, then Acting Chairman of the Board and
Chief Executive Officer of Old WMI, attended a meeting of the Company Board at
which he expressed his intention to recommend that the Old WMI Board authorize
senior management of Old WMI to make a proposal for the Minority Shares. At
that meeting, he requested the Independent Directors to begin the process of
selecting independent financial and legal advisors to assist them in
responding to any such proposal from Old WMI.
Immediately following that meeting, the Independent Directors met and
decided to retain Slaughter and May to act as independent legal advisors in
connection with the evaluation and negotiation of any forthcoming proposal
from Old WMI. In addition, the Independent Directors discussed the
requirements for selecting an independent financial advisor, the
qualifications and experience required of such an advisor, and the procedure
to be utilized for selecting an investment advisor. The Independent Directors
decided to solicit written proposals from four financial advisors selected by
the Independent Directors based upon their general reputation and experience
in mergers and acquisitions and similar transactions.
Following receipt of submissions from the four financial advisors and
distribution to the Independent Directors of the terms of such proposals and
the relevant experience of each firm in comparable transactions, the
Independent Directors agreed on February 20, 1998 to retain KPMG Corporate
Finance. On February 21, 1998, and prior to agreeing the terms of engagement
with KPMG Corporate Finance, Mr. Miller advised the Company that senior
management of Old WMI had determined not to proceed with a proposal to acquire
the Minority Shares at that time because of concerns over the availability of
financing for the proposal. Therefore, no further negotiations were held and
no engagement letter was signed with KPMG Corporate Finance.
On March 10, 1998, Old WMI and USA Waste jointly announced that they had
entered into the Merger Agreement.
In April 1998, senior management of Old WMI began again to evaluate and
develop more specifically a proposal to acquire the Minority Shares of the
Company. After consulting with Merrill Lynch, Old WMI's financial advisors,
senior management determined to recommend to the Old WMI Board that Old WMI
acquire the Minority Shares for cash. In reaching this decision, senior
management of Old WMI believed that the acquisition of the Minority Shares
would enable Old WMI to manage its world-wide waste services business as a
single enterprise, simplify Old WMI's corporate structure, reduce overall
operational and administrative costs, eliminate the expenses of running a
separate publicly traded subsidiary and streamline decision-making.
5
On April 30, 1998, at a meeting of the Company Board, Mr. Miller informed
the Independent Directors that the financing concerns identified on February
21, 1998 appeared to be on their way toward a satisfactory resolution and that
he intended to recommend to the Old WMI Board at its meeting scheduled for May
15, 1998 that Old WMI make a proposal to acquire the Minority Shares. Mr.
Miller requested that the Independent Directors finalize the selection of
independent financial and legal advisors in anticipation of such a proposal
and commence the process of valuing the Minority Shares for purposes of a
going-private transaction.
Immediately following that meeting, the Independent Directors met separately
and agreed to retain Slaughter and May as legal advisors to the Independent
Directors and authorized Sir William Barlow to negotiate the terms of
engagement with KPMG Corporate Finance to act as financial advisors to the
Company, and in particular the Independent Directors. KPMG Corporate Finance
was engaged to analyze and provide advice to its clients with respect to the
proposal and to assist in any negotiations with respect to such a transaction.
On May 12, 1998, Sir William Barlow met with KPMG Corporate Finance, Slaughter
and May and Stephen P. Stanczak, Vice President--Legal Affairs and Company
Secretary, to discuss the review and analysis process which KPMG Corporate
Finance would conduct, various valuation methodologies, a timetable for any
transaction should a proposal be forthcoming from Old WMI and the appropriate
structure or structures for such a transaction. Over the next several weeks,
KPMG Corporate Finance commenced its review and analysis of the Company. See
"Item 9--Reports, Opinions, Appraisals and Certain Negotiations--Opinion of
Financial Advisor of the Company" for a discussion of KPMG Corporate Finance's
evaluation of the Company and Old WMI's proposal to acquire the Minority
Shares.
In order to facilitate their review and analysis of the Company, Old WMI's
financial advisors had requested that the Company prepare five-year financial
projections for the Company's operating businesses, in addition to the three-
year projections customarily prepared by the Company (the "Financial
Projections"). The Financial Projections were furnished to KPMG Corporate
Finance and Merrill Lynch on or about May 13, 1998. A discussion of the
Financial Projections and the material assumptions underlying them is set
forth in "Item 16--Additional Information--Certain Financial Projections of
the Company".
At the May 15, 1998 Old WMI Board meeting, the Old WMI Board reviewed senior
management's recommendation that Old WMI acquire the Minority Shares in the
Company for cash. At the meeting, senior management outlined the potential
advantages in operating benefits, cost efficiencies, organizational
simplification and tax-related benefits that might be realized if the Company
were to become a wholly owned subsidiary of Old WMI. After discussing these
matters, the Old WMI Board approved the making of a proposal to acquire, for
cash, all of the Minority Shares in the Company. The Old WMI Board delegated
to senior management the authority to determine and negotiate the terms of a
transaction on behalf of Old WMI, subject to final approval by the Old WMI
Board.
Shortly thereafter, Mr. Miller initiated specific discussions with Sir
William Barlow concerning the Proposal. On May 29, 1998, Mr. Miller delivered
to Sir William Barlow a letter on behalf of the Old WMI Board, the text of
which follows:
Dear Sir William:
This will follow up on and confirm our conversation earlier this week.
During our conversation, I indicated to you that the Waste Management, Inc.
("WMX") Board of Directors has authorized me to initiate discussions with the
independent directors of Waste Management International plc ("WME") with
respect to a transaction involving the acquisition of all of the outstanding
ordinary shares of WME not owned by WMX and its affiliates. Our advisors have
recommended that any such transaction take the form of a "scheme of
arrangement" under Section 425 of the Companies Act of 1985. I indicated to
you that WMX would support such a transaction priced at the equivalent of
US$9.50 per American Depository Receipt (US$4.75 per ordinary share). Most
importantly, I indicated to you that WMX's proposal is subject to several
conditions, including a requirement that the independent, non-executive
directors of WME would recommend such a transaction to the public shareholders
of WME.
6
I understand that both WME's and WMX's financial advisors are engaged in the
due diligence and financial analysis process, and that WME's advisors are
expected to report to the WME Audit Committee on June 4. I will be on holiday
during the period of June 6 through June 14, and would suggest that
communications during this period either be through our financial advisors, or
be directed to Herb Getz, in my absence.
I will look forward to hearing back from you at your convenience.
Very truly yours,
/s/ Robert S. Miller
Robert S. Miller
Chairman of the Board and
Chief Executive Officer
On June 4, 1998, the Independent Directors (except for Mr. Sholz who was
unable to attend) met with representatives of KPMG Corporate Finance,
Slaughter and May and Mr. Stanczak. At the meeting, KPMG Corporate Finance
reviewed the status of the review and analysis of the Company, which was
substantially complete by that point. The Independent Directors and their
advisors also considered whether there were any potential alternative
transactions as well as the possibility to postpone consideration of a
proposal to acquire the Minority Shares in light of the pending Merger and in
order to afford certain underperforming operations, primarily in Italy, a
further opportunity to demonstrate improved results. The Independent Directors
also determined that the possibility of receiving shares of Old WMI (or WMI
following completion of the Merger) should be explored as part of any
counteroffer. The Independent Directors decided that it was appropriate to
proceed with negotiations with Old WMI and authorized Sir William Barlow to
make a counteroffer of $12.50 per ADR.
On June 5, 1998, Sir William Barlow contacted Mr. Miller and advised him
that the Independent Directors could not recommend the price of $9.50 per ADR
as proposed by Old WMI. In that conversation, Sir William Barlow and Mr.
Miller agreed to a meeting between KPMG Corporate Finance and Merrill Lynch to
take place the following week. Sir William Barlow also asked that Old WMI
consider offering shareholders the option to receive either cash or shares of
Old WMI common stock in exchange for the Minority Shares. On June 10 and 11,
1998, representatives of the Company and KPMG Corporate Finance met with
representatives of Merrill Lynch. At that meeting, KPMG Corporate Finance
discussed with Merrill Lynch its analyses relating to the valuation of the
Company and the principal methodologies it had used. The financial advisors
also discussed the advisability and practicality of making a proposal which
included an option to elect to receive shares of Old WMI common stock and
concluded that such a transaction was probably not appropriate.
Following the meetings in London on June 10 and 11, KPMG Corporate Finance
discussed with Sir William Barlow potential responses to the original offer
submitted by Old WMI based upon the results of its meetings with Merrill
Lynch. During this same period, Merrill Lynch worked with senior management of
Old WMI to prepare its response to the analysis of KPMG Corporate Finance. In
the period between June 11 and June 16, Sir William Barlow held a series of
telephone conversations with the other Independent Directors in which he
informed them of the results of the meetings between the companies' financial
advisors and obtained their approval to proceed with the counteroffer as
agreed at the June 4 meeting of the Independent Directors.
Sir William Barlow contacted Mr. Miller on June 16 and proposed a
counteroffer of $12.50 per ADR. Mr. Miller expressed reservations over the
price requested by the Independent Directors. Mr. Miller proposed a meeting to
take place the following week between himself and Old WMI's financial advisors
and Sir William Barlow and the Company's financial advisors.
Following this conversation, Mr. Miller asked Merrill Lynch to contact KPMG
Corporate Finance to discuss Merrill Lynch's response to the analysis of KPMG
Corporate Finance in order to facilitate an agreement as to
7
the purchase price for the Ordinary Shares. On June 17, representatives of
Merrill Lynch discussed with representatives of KPMG Corporate Finance Merrill
Lynch's analysis relating to the valuation of the Company and their response
to the analysis prepared by KPMG Corporate Finance.
On June 23, 1998, Mr. Miller and Sir William Barlow met and each presented
their analyses of the appropriate value of the Ordinary Shares and ADRs. Sir
William Barlow and Mr. Miller agreed to a transaction price of 345p per
Ordinary Share (approximately $11.50 per ADR based on the US dollars/pounds
sterling exchange rate at the time). Legal and financial advisors to the
Company and Old WMI then joined Mr. Miller and Sir William Barlow to further
discuss additional terms and conditions of the Proposal which included: (i)
the Proposal being approved by the full committee of Independent Directors,
(ii) receipt by the Independent Directors of a written opinion of KPMG
Corporate Finance that such consideration is fair from a financial point of
view to the Scheme Shareholders and fair and reasonable so far as the Scheme
Shareholders are concerned, (iii) approval of the Proposal by the Old WMI
Board, (iv) receipt by the Old WMI Board of a written opinion of Merrill Lynch
that the consideration to be paid is fair to Old WMI from a financial point of
view and (v) agreement on additional customary terms and conditions of the
Proposal.
On June 29, 1998, the Independent Directors met with KPMG Corporate Finance,
Slaughter and May and Mr. Stanczak to review the final analyses prepared in
connection with the Proposal. KPMG Corporate Finance also delivered its
written opinion to the Independent Directors that the Proposal is fair from a
financial point of view to the Scheme Shareholders and fair and reasonable so
far as the Scheme Shareholders were concerned. See "Item 9--Reports, Opinions,
Appraisals and Certain Negotiations--Opinion of Financial Advisor of the
Company" for a discussion of KPMG Corporate Finance's written opinion. The
Independent Directors reviewed the terms and conditions of the Proposal as set
forth in a proposed press release which the Independent Directors approved for
release following confirmation that the Proposal had been approved by the Old
WMI Board.
In deliberating on the Proposal, the Independent Directors assessed the
Company Group's growth potential and the possibility for increasing
shareholder value through a variety of mechanisms. This assessment also
included consideration of the difficult trading and operational conditions
being experienced within certain of the Company Group's businesses and the
lack of suitable short term investment and acquisition opportunities. The
results of this process led the Independent Directors to conclude that there
is limited prospect of an improvement in the financial performance of the
Company Group occurring in the short term such as would result in a
significant upward revaluation of the Company's share price.
The Independent Directors also took into account a number of other factors.
In particular, the Independent Directors acknowledged the intention of each of
Old WMI and WMI to retain its controlling interest in the Company. This
intention necessarily precluded any investigation into the possibility of
selling the Company to a third party. In addition, the Independent Directors
concluded that it was unlikely that access to the equity markets would be
required to fund growth in the foreseeable future, as the Company was likely
to have sufficient credit facilities available to it both from Old WMI and
from the financial markets and that debt finance was likely to be the
preferred means of financing the Company Group's anticipated needs.
Furthermore, in the anticipated absence of future equity offerings and issues
of Ordinary Shares for the purpose of acquiring additional businesses, was not
clear that the significant expenses which result from the Company's public
status continue to be justified. The Independent Directors also concluded that
none of the mechanisms considered which may have increased shareholder value
were sufficiently certain or adequate to offer greater attraction than
approval of the Proposal.
In light of the above, the Independent Directors considered that it was
appropriate for the Scheme Shareholders to be given the opportunity to realize
their investment in the Company on terms which the Independent Directors
considered fair and reasonable so far as the Scheme Shareholders are
concerned. Accordingly, the Independent Directors unanimously adopted
resolutions approving the Proposal, granting authority to any two Independent
Directors or any one Independent Director and Mr. Stanczak to take such
actions as may be required in furtherance of the Proposal, and to recommend to
Scheme Shareholders that they vote in favor of the Proposal at the Court
Meeting and the Extraordinary General Meeting.
8
Also on June 29, 1998, the Old WMI Board met with financial and legal
advisors to discuss: (i) the Proposal, (ii) drafts of the news releases
announcing the Proposal and (iii) a draft of Merrill Lynch's opinion to the
Old WMI Board that the consideration to be paid by Old WMI pursuant to the
Proposal was fair from a financial point of view to Old WMI. See "Item 9--
Reports, Opinions, Appraisals and Certain Negotiations--Opinion of Financial
Advisor of Old WMI" for a discussion of Merrill Lynch's opinion to the Old WMI
Board. After discussing these matters, the Old WMI Board unanimously voted to
adopt resolutions approving the Proposal, approving the draft news releases
and authorizing senior management to take all actions necessary to consummate
the Proposal.
On June 29, 1998, Old WMI and the Company issued press releases disclosing
that Old WMI and the Independent Directors had agreed on the terms of the
Proposal.
Certain Agreements between the Company and its Affiliates
The Company has entered into certain agreements with Old WMI and various of
its other subsidiaries that are described in "Item 16--Additional
Information--Certain Agreements".
ITEM 4. TERMS OF THE TRANSACTION
Introduction
Pursuant to the terms of the Proposal, the Company would become an indirect,
wholly-owned subsidiary of WMI, the holder indirectly of approximately 80
percent of the outstanding share capital of the Company as a result of the
Merger. Holders of the approximately 20 percent outstanding share capital of
the Company (including in the form of ADSs evidenced by ADRs) not currently
owned by WMI and its subsidiaries would receive the Ordinary Shares
Consideration or the ADRs Consideration, as the case may be. The Proposal will
be implemented by means of the Scheme.
Conditions to the Scheme
The Proposal is conditional upon the Scheme becoming unconditional and
becoming effective by not later than December 31, 1998 or such later date as
the Company and Old WMI may agree and the English High Court may approve.
The consummation of the Proposal is subject to the following conditions:
1. the approval by a majority in number of those voting representing three-
fourths in value of the Scheme Shares voted, either in person or by
proxy, at the Court Meeting (as defined below) convened by order of the
English High Court;
2. the special resolution required to approve and implement the Scheme
being passed at an Extraordinary General Meeting (described below) of
the Company;
3. the sanction (with or without modification) of the Scheme and
confirmation of the reduction of capital involved therein by the English
High Court and an office copy of the Order of the Court being delivered
for registration to the Registrar of Companies in England and Wales (and
registered by him in relation to the reduction of capital);
9
4. no government or governmental, quasi-governmental, supranational,
statutory or regulatory body, trade agency, court or other body or
person in any jurisdiction having instituted, implemented or threatened
any action, proceedings, suit, investigation or inquiry, or having
enacted, made or proposed any statute, regulation or order or taken any
measures or other steps, that would or might make the Scheme or any part
of it or the issue of this Transaction Statement, void, unenforceable or
illegal, or directly or indirectly restrain, restrict, prohibit, delay
or otherwise interfere in a material way with the implementation of, or
impose material additional conditions or obligations with respect to, or
otherwise challenge or in a material way hinder, the Scheme or any part
of it or this Transaction Statement, or (except as fairly disclosed to
Old WMI or any of its subsidiaries other than the Company Group prior to
June 29, 1998) otherwise materially and adversely affect the business,
profits or prospects of the Company Group taken as a whole;
5. all authorizations, orders, grants, recognitions, confirmations,
consents, clearances, permissions and approvals ("authorizations") and
determinations which are material in the context of the Company Group
taken as a whole or the Scheme and which are necessary or appropriate in
any jurisdiction for or in respect of the Scheme and each part of it
being obtained in terms and in a form reasonably satisfactory to Old WMI
from any persons or bodies (including, without limitation, any
government or governmental, quasi-governmental, supranational, statutory
or regulatory body, trade agency or court) with whom any member of the
Company Group has entered into contractual arrangements (other than any
such authorization or determination required only from Old WMI itself or
any company controlled in relation to any such authorization or
determination by Old WMI, if any) and such authorizations and
determinations together with all authorizations and determinations
(other than any such authorization or determination required only from
Old WMI itself or any company controlled in relation to any such
authorization or determination by Old WMI, if any) which are material in
the context of the Company Group taken as a whole or the Scheme and
which are necessary or appropriate for any member of the Company Group
to carry on its business remaining in full force and effect and there
being no indication of any intention to revoke, suspend, restrict,
modify or not renew any of the same and all appropriate waiting periods
under any applicable legislation and regulations in any jurisdiction
which are material in the context of the Company Group taken as a whole
or the Scheme and all necessary statutory or regulatory obligations in
any jurisdiction which are material in the context of the Company Group
taken as a whole or the Scheme having been complied with;
6. there being no provision of any arrangement, agreement, licence or other
instrument to which any member of the Company Group is a party or by or
to which any member of the Company Group or any part of its assets may
be bound, entitled or subject which would or might, as a result of the
Scheme or any part of it, to an extent which is material in the context
of the Company Group taken as a whole or the Scheme, result in (i) any
moneys borrowed or other indebtedness (actual or contingent) of any
member of the Company Group being or becoming repayable or capable of
being declared repayable prior to its stated maturity or the ability of
any such member to borrow moneys or incur any indebtedness being
withdrawn or inhibited; (ii) any such arrangement, agreement, licence or
instrument being breached, terminated or materially modified or any
onerous obligation or liability arising or any material action being
taken or right to take the same arising thereunder; (iii) the interests
of any member of the Company Group with any person under any such
arrangement, agreement, licence or instrument or the interests or
business of any such member in or with any other person or body (or any
arrangements relating to such interests or business) being terminated,
modified or materially adversely affected or any right to so terminate,
modify or affect arising, and there being no indication of any intention
to so terminate, modify or affect or (iv) the respective financial or
trading position or prospects of any such member being prejudiced or
adversely affected; and
7. since March 31, 1998, and except for any matter fairly disclosed to Old
WMI or any of its subsidiaries other than any member of the Company
Group prior to June 29, 1998, (i) no adverse change or deterioration
having occurred in the business, assets, financial or trading position
or profits or prospects of the Company or any other member of the
Company Group which is material in the context of the Company Group
taken as a whole; (ii) no litigation or arbitration, prosecution or
other legal
10
proceedings having been instituted or threatened by or against or
otherwise involving any member of the Company Group and no investigation
by any relevant authority against or in respect of any member of the
Company Group having been threatened in writing, announced or instituted
or remaining outstanding by, against or in respect of any such member
and which in any such case might materially and adversely affect the
Company Group taken as a whole and (iii) no contingent or other
liability having arisen which is likely materially and adversely to
affect the Company Group taken as a whole.
Old WMI reserves the right, in its absolute discretion, to waive all or any of
the conditions in paragraphs 4 through 7 above, in whole or in part.
Scheme Stages
Procedurally, the Scheme can generally be divided into three stages: (i)
applying to the English High Court for an order directing a meeting of Scheme
Shareholders to be held (the "Court Meeting"); (ii) holding the Court Meeting
to consider the Scheme and the Extraordinary General Meeting (described below)
to pass the special resolution required to give effect to the Scheme and (iii)
applying to the English High Court for the Scheme to be sanctioned. These
stages are discussed in greater detail below.
The Company initiated the Scheme by applying to the English High Court for
an order to allow the Company to convene the Court Meeting and to send out to
all Scheme Shareholders the Scheme Document, attached as Schedule A hereto.
The Scheme Document is comprised of the following: (i) an introductory letter
from the Chairman of the Committee of Independent Directors to Scheme
Shareholders summarizing the Scheme; (ii) an explanatory statement in
compliance with section 426 of the UK Companies Act; (iii) information on the
Company; (iv) information on WMI; (v) the terms and conditions of the Scheme;
(vi) certain tax information for UK and US holders of Ordinary Shares or ADRs;
(vii) certain additional information; (viii) a formal technical document
setting out the proposals embodied in the Scheme; (ix) the notice of the Court
Meeting to vote on the Scheme and (x) the notice of the Extraordinary General
Meeting of the Company. The English High Court has issued an order to convene
the Court Meeting and has directed that a copy of the Scheme Document be sent
to each Scheme Shareholder at his or her registered or last known address.
The second stage in the Scheme process involves holding the Court Meeting
and the Extraordinary General Meeting. Pursuant to the English High Court
order, the Scheme Document will have been distributed to the Scheme
Shareholders prior to the Court Meeting. Scheme Shareholders may attend the
Court Meeting in person or appoint another as a proxy in their place. An
appropriate form of proxy has been sent to each Scheme Shareholder with the
notice of meeting.
There are no quorum requirements for the Court Meeting and all Scheme
Shareholders who send in a proxy will be counted in the voting as well as
Scheme Shareholders attending the Court Meeting in person. There are two
elements to the majority required to sanction the Scheme: (i) a majority in
number of those voting representing (ii) three-fourths in value of the Scheme
Shares voted, either in person or by proxy, at the Court Meeting. The Court
Meeting will be held at the offices of Slaughter and May, 4 Coleman Street,
London EC2V 5DB, at 10:00 am (London time) on October 7, 1998.
Since the Scheme involves the cancellation of the Scheme Shares by way of a
reduction of the share capital of the Company, the Scheme also requires the
passing of a special resolution by the holders of Ordinary Shares at the
Extraordinary General Meeting to give effect to the Scheme. The special
resolution also includes provisions amending the Articles of Association of
the Company to ensure that any Ordinary Shares issued to any person before
5:30 pm (London time) on the business day immediately before the date of the
hearing by the English High Court of the petition to sanction the Scheme (the
"Hearing Date") will be subject to the Scheme and any Ordinary Shares allotted
or issued after 5:30 pm (London time) on the business day immediately before
the Hearing Date will not be subject to the Scheme but will be allotted and
issued on terms that the relevant allottees and any subsequent holders of such
Ordinary Shares will be obliged to transfer them to WMI or its nominee in
consideration for the payment by WMI of 345p for each such Ordinary Share.
This latter provision
11
will ensure that WMI and its subsidiaries own or control all the Ordinary
Shares in the Company if the Scheme becomes effective.
At the Extraordinary General Meeting, the special resolution must be
approved by a majority of not less than 75 percent of votes cast. The quorum
for the Extraordinary General Meeting is two shareholders present in person or
by proxy. All shareholders, including holders of WMI Group Shares, are
entitled to attend the Extraordinary General Meeting and vote on the special
resolution. Holders of WMI Group Shares have confirmed that they intend to
vote in favor of the special resolution to be proposed at the Extraordinary
General Meeting. Accordingly, should the holders of the WMI Group Shares so
vote, the special resolution will be passed. The Extraordinary General Meeting
has been convened for 10:30 am (London time) (or as soon as possible
thereafter as the preceding Court Meeting has been concluded or adjourned) on
October 7, 1998 at the same location as the Court Meeting.
Holders of ADRs will be entitled to direct the Depositary to vote on the
Scheme pursuant to the terms of the Deposit Agreement. The applicable terms of
the Deposit Agreement and the means by which holders of ADRs may vote on the
Scheme are set forth in "Item 11--Contracts, Arrangements or Understandings
with Respect to the Issuer's Securities". Holders of ADRs who wish to attend
the Court Meeting or the Extraordinary General Meeting should take steps to
present their ADRs to the Depositary as such steps are described in the
Depositary Notice to which this Transaction Statement is attached so that they
become registered holders of Ordinary Shares prior to 5:30 pm (London time) on
October 5, 1998, two days before those meetings.
The final stage of the Scheme involves obtaining approval of the Scheme by
the English High Court. This is done by filing a petition with the English
High Court together with supporting affidavits proving service of the notice
of the Court Meeting and verifying the report as to the result of the Court
Meeting. Once the relevant court officers have determined that all
documentation is in order, the petition will be scheduled for a final hearing
(the "Court Hearing"). Notice of the Court Hearing informing Scheme
Shareholders and creditors of their right to attend the Court Hearing and to
be heard by the English High Court will be published in the UK national press
eight days prior to the Court Hearing. The Court Hearing is scheduled for
November 2, 1998.
The English High Court has discretion whether or not to sanction the Scheme.
In determining whether to exercise its discretion to sanction the Scheme, the
English High Court will adopt an objective test and will assess whether the
Scheme is such that an intelligent and honest holder of Scheme Shares, acting
in respect of his or her interest, might reasonably approve the Scheme. In a
scheme of arrangement involving a reduction of capital, the English High Court
will also consider whether the interests of creditors are protected.
Once the English High Court approves the Scheme, an office copy of the Court
Order will be filed with the Registrar of Companies in England and Wales. The
Scheme will be effective and binding when this filing is made and registered
by the Registrar of Companies. Once the Scheme becomes effective all of the
Scheme Shares, without any further action by the Scheme Shareholders, will be
canceled and retired and will cease to exist. Each Scheme Shareholder will
thereafter cease to have any rights with respect to such shares, except the
right of such Scheme Shareholder to receive, without interest, the Ordinary
Shares Consideration. Holders of ADRs will also thereafter cease to have any
rights with respect to such ADRs, except the right to receive, without
interest, the ADRs Consideration.
Once the Scheme becomes effective and the Scheme Shares are canceled, the
Company will issue new shares to designated subsidiaries of WMI in an amount
equivalent to the reduction in capital resulting from the Scheme. Since the
Scheme involves the issue of new shares and a reincrease of capital by an
equivalent amount to the initial reduction, creditors of the Company will not
be prejudiced by the Scheme. As noted above, the English High Court will
sanction the Scheme only if it finds, among other things, that the reduction
of capital involved in the Scheme will not prejudice creditors.
Settlement of Consideration
Subject to the Scheme becoming effective, settlement of the consideration to
which any Scheme Shareholder is entitled under the Scheme will be effected in
the following manner:
12
Checks in respect of their cash entitlements under the Scheme will be mailed
to Scheme Shareholders who hold their Scheme Shares in certificated form or
who have made a Dollar Election (as described below) not later than 14 days
after the date on which the Scheme becomes effective in accordance with its
terms (the "Effective Date"). For Scheme Shares held in uncertificated form
(except where the holder has made a Dollar Election), the cash consideration
to which Scheme Shareholders are entitled will be paid by means of CREST (the
relevant system, as defined in the Uncertificated Securities Regulations 1995
(the "Regulations") in respect of which CRESTCo. Limited is the "Operator" (as
defined in the Regulations)) by processing the creation of an assured payment
obligation in favor of the Scheme Shareholders' payment bank in respect of the
cash consideration due, in accordance with the CREST assured payment
arrangements, by no later than 14 days after the Effective Date. Entitlements
under the Scheme will be determined by reference to registered holdings of
Scheme Shares at 5:30 pm (London time) on the business day immediately
preceding the Effective Date (the "Record Date").
Scheme Shareholders wishing to elect for the Dollar Election in respect of
their Scheme Shares should take steps to complete, sign and return the Dollar
Election Form as such steps are described in the Scheme Document. Elections
for the Dollar Election must be made in respect of the whole of a Scheme
Shareholder's holding and will be irrevocable once made. A Dollar Election
will be valid in respect of all the Scheme Shares registered as at 5:30 p.m.
(London time) on the Record Date in the name of the Scheme Shareholder who has
made the election. Accordingly, if a Scheme Shareholder who has made a Dollar
Election subsequently transfers some or all of his Scheme Shares and the
transfer is registered before that time, the transferee shall receive the
Sterling Consideration in respect of such Scheme Shares unless such transferee
makes or has made a valid Dollar Election with respect thereto. The aggregate
Dollar Consideration due to a Scheme Shareholder who has made a Dollar
Election shall be rounded down to the nearest whole cent. Payment in US
dollars may be inappropriate for holders of Scheme Shares other than persons
in the US.
ADR holders will receive the ADRs Consideration in US dollars and therefore
do not need to make a Dollar Election in respect of their ADRs. Pursuant to
Section 4.02 of the Deposit Agreement, the Depositary shall distribute the
ADRs Consideration to the holders of ADRs. In the event, however, that the
Company or the Depositary is required to withhold and does withhold taxes or
other governmental charges from such cash distribution, the amount distributed
to the holders of ADRs will be reduced accordingly. The Depositary will
distribute only such amount, however, as can be distributed without
attributing to any holder of ADRs a fraction of one cent. Any such fractional
amounts will be rounded down to the nearest whole cent. The ADRs Consideration
must be deposited with the Depositary not later than 14 days after the
Effective Date. The Depositary will thereafter distribute the ADRs
Consideration to ADR holders pursuant to the terms of the Deposit Agreement.
The actual amount of US dollars received by ADR holders or by Scheme
Shareholders who have made a Dollar Election will depend upon the exchange
rate prevailing on the Effective Date. Scheme Shareholders should be aware
that the US dollar/pounds sterling exchange rate which is prevailing at the
date on which an election is made to receive US dollars and on the date of
mailing of payment may be different from that prevailing on the Effective
Date. In all cases, fluctuations in the US dollar/pounds sterling exchange
rate are at the risk of Scheme Shareholders who have made a Dollar Election.
All documents and remittances sent by or to Scheme Shareholders and ADR
holders, or as such persons shall direct, will be sent at their own risk and
may be sent by mail.
ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE
Upon completion of the Scheme, the Company will be an indirect, wholly-owned
subsidiary of WMI. Therefore, following the completion of the Scheme, the
Scheme Shareholders and ADR holders will no longer share in the future
earnings or growth of the Company or benefit from any increases in the value
of the Company, and they will no longer bear the risk of any decreases in the
value of the Ordinary Shares or ADRs.
Since Scheme Shareholders and ADR holders will have no continuing interest
in the Company following the completion of the Scheme, the Ordinary Shares and
ADRs will no longer meet the requirements of the
13
London Stock Exchange and the NYSE, respectively, for continued listing and
will therefore be delisted from the London Stock Exchange and the NYSE.
The London Stock Exchange will be requested to cancel the listing of
Ordinary Shares with effect from the close of business on the Effective Date.
Upon the Scheme becoming effective, certificates for the Scheme Shares will
cease to be of value. The Company proposes that the Record Date will be the
last date for dealings in Ordinary Shares on the London Stock Exchange.
The ADRs are currently registered under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"). Upon the Scheme becoming effective,
registration of the ADRs under the Exchange Act will be terminated and the
Company will be relieved of the obligation to comply with the public reporting
requirements of the Exchange Act. In addition, the Company will take the
appropriate measures to delist the ADRs from the NYSE. Accordingly, the
Company will not be subject to the periodic reporting requirements of the
Exchange Act.
Except as otherwise described in this Transaction Statement, WMI has not, as
of the date of this Transaction Statement, approved any specific plans or
proposals for any extraordinary corporate transaction involving the Company
after the completion of the Scheme, any sale or transfer of a material amount
of assets of the Company after the completion of the Scheme or a material
change in the Company's corporate structure or business. However, as noted
below under "Item 7--Purpose(s), Alternatives, Reasons and Effects", one of
the reasons for the Scheme is to achieve certain operational and cost
efficiencies that may result from combining certain functions and operations
of the Company and its subsidiaries with those of WMI or certain of its
subsidiaries. WMI intends after the completion of the Scheme to cause the
Company to engage in such transactions and material changes as may be
appropriate in WMI's judgment in order to achieve such efficiencies. In
addition, while WMI does not have any present intention to sell or transfer
any material amount of assets of the Company, WMI's plans may change at any
time, and WMI may in the future elect to cause the Company to sell, transfer
or otherwise dispose of all or any portion of the assets of the Company to WMI
or any one or more of its subsidiaries or to any other parties as warranted by
future conditions. WMI may also, as warranted in light of future conditions,
cause changes in the Company's dividend policy, indebtedness or
capitalization, including the payment of dividends and repayment of
indebtedness to WMI or certain of its subsidiaries. Following the completion
of the Scheme, it is the intention of the Independent Directors to resign from
the Company Board.
ITEM 6. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATIONS
It is currently expected that approximately $432 million (which is the total
consideration for both ADRs and Ordinary Shares) will be required to pay the
consideration under the Scheme. These funds are available under WMI's $2
billion senior revolving credit facility. The credit facility contains
financial covenants with respect to interest coverage and debt capitalization
ratios. The credit facility also contains limitations on dividends, additional
indebtedness, liens and asset sales. The credit facility is available for
standby letters of credit up to $650 million. The applicable interest rate and
facility fee at December 31, 1997 was 6.1% per annum and 0.1125% per annum,
respectively.
The estimated aggregate costs and fees of the Company and WMI in connection
with the Proposal are as follows:
Investment Banking Fees and Expenses.......................... $2,400,000
Filing Fees................................................... $ 52,114
Legal Fees and Expenses....................................... $ 750,000
Printing, Mailing and Vote Solicitation Fees.................. $ 260,000
Accounting Fees............................................... $ 20,000
----------
Total..................................................... $3,482,114
==========
14
Such fees and expenses are to be paid by the party which incurred them,
except for financial printing costs, which shall be borne equally by WMI and
the Company.
ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS
The purpose of the Scheme is for the Company to become an indirect, wholly-
owned subsidiary of Old WMI and, as a result of the Merger, an indirect,
wholly-owned subsidiary of WMI, while providing Scheme Shareholders and ADR
holders with the opportunity to realize the value of their investment in the
Company in cash at a premium to market prices for the Ordinary Shares and the
ADRs prior to the announcement of the Proposal. Completion of the Scheme is
also expected to: (i) enhance operating flexibility, (ii) reduce expenses,
(iii) simplify WMI's corporate structure and (iv) simplify management
decisions. See "Item 3--Past Contacts, Transactions or Negotiations--
Background of the Proposal" for a discussion of the reasons for undertaking
the Scheme at this time.
Certain Effects of the Completion of the Scheme
Upon completion of the Scheme, Scheme Shareholders will have the right to
receive the Ordinary Shares Consideration and ADR holders will be entitled to
receive the ADRs Consideration. Also, upon completion of the Scheme, Scheme
Shareholders and ADR holders will cease to have any ownership interest in the
Company and will cease to participate in future earnings and growth, if any,
of the Company. Moreover, upon completion of the Scheme, public trading of the
Ordinary Shares and the ADRs will cease. The Company intends to have the
Ordinary Shares delisted from the London Stock Exchange and the ADRs delisted
from the NYSE.
Pursuant to the terms of the Scheme, Old WMI will pay approximately $432
million plus expenses to complete the Scheme.
Certain Tax Considerations
The following is a summary of certain of the expected US federal income tax
consequences of the receipt of cash upon the completion of the Scheme.
US Holders. The following paragraphs address certain US federal income tax
consequences applicable to Scheme Shareholders and ADR holders that are US
Holders. The term "US Holder" means a beneficial owner of Scheme Shares or
ADRs that is for US federal income tax purposes (i) a citizen or resident of
the US, (ii) a corporation, partnership or other entity created or organized
under the laws of the US or any political subdivision thereof or therein,
(iii) any estate or trust defined in Section 7701(a)(30) of the Internal
Revenue Code of 1986, as amended (the "Code") or (iv) a person whose worldwide
income or gain is otherwise taxable in the US on a net income basis. This
summary is based on the Code, administrative pronouncements, judicial
decisions and regulations, changes to any of which (which may be retroactive)
may affect the tax consequences described herein. This summary assumes that
the Scheme Shares and ADRs have been held as capital assets. It does not
address the tax treatment of individuals who have received Scheme Shares and
ADRs in connection with employment such as by the exercise of options granted
to employees, and it is not addressed to holders owning at least 10% (after
applying the constructive ownership rules of Section 958(b) of the Code) of
the voting power of the Company. This summary also assumes that the Company is
not and has never been a passive foreign investment company for US federal
income tax purposes. This summary does not discuss all tax consequences that
may be relevant to a US Holder of Scheme Shares or ADRs in the light of such
holder's particular circumstances or to holders subject to special rules, such
as certain financial institutions, regulated investment companies, insurance
companies, dealers in securities, exempt organizations, US Holders whose
functional currency is not the US dollar or US Holders engaged in straddle or
"hedging" transactions.
15
The cancellation by a US Holder of ADRs so that they become Ordinary Shares
is not a taxable event. In general, a US Holder of Scheme Shares or ADRs will,
for US federal income tax purposes, recognize a gain or loss equal to the
difference between such holder's adjusted tax basis in the Scheme Shares or
ADRs cancelled and the amount of cash received in exchange therefor. Such gain
or loss will generally be capital gain or loss. In general, any capital loss
would be currently deductible only to the extent of the holder's capital gains
plus, in the case of a non-corporate holder, ordinary income of up to $3,000
(assuming a joint tax return is filed). A corporation may carryback unused
capital losses to the preceding three years and carryforward unused capital
losses to the next five years; an individual may carryforward such losses
indefinitely. In addition, an accrual basis holder of Scheme Shares or ADRs
that does not elect to be treated as a cash basis taxpayer pursuant to the
foreign currency exchange regulations may have a foreign currency exchange
gain or loss for US federal income tax purposes because of differences between
the US dollars/pounds sterling exchange rates prevailing on the effective date
and on the date of payment. Any such currency gain or loss would be treated as
ordinary income or loss and would be in addition to the gain or loss realized
by the holder as a result of the Scheme.
Non-US Holders. Any gain realized by a person other than a US Holder (a
"Non-US Holder") on the sale of Scheme Shares or ADRs generally will not be
subject to US federal income taxation, unless (i) such gain is effectively
connected with the conduct by the Non-US Holder of a US trade or business,
(ii) the Non-US Holder is present in the US for 183 days or more in the year
of disposition and certain other requirements are met or (iii) the Non-US
Holder is subject to US tax law provisions applicable to certain US
expatriates.
The foregoing discussion is for general information only and is intended to
be a summary of the principal US federal income tax considerations of the
Scheme. Each US Holder should consult his or her own tax advisor concerning
the US federal and applicable state, local, foreign and other tax consequences
of the Scheme.
ITEM 8. FAIRNESS OF THE TRANSACTION
The Company believes that the transaction described in this Transaction
Statement is fair to the Scheme Shareholders. The Independent Directors, who
have been so advised by KPMG Corporate Finance, consider that the terms of the
Proposal are fair and reasonable so far as the Scheme Shareholders are
concerned. At a meeting held by telephone on June 29, 1998, at which all of
the Independent Directors were present, the Independent Directors unanimously
approved the Scheme and recommended that the Scheme Shareholders vote to
approve the Scheme. The Independent Directors intend to vote their own
beneficial holdings to approve the Scheme at the Court Meeting and in favor of
the special resolution to be proposed at the Extraordinary General Meeting.
In determining the fairness of the terms of the Proposal, the following
factors are relevant and support the determination of the Independent
Directors to recommend the Scheme:
. the fact that the Independent Directors consisted of directors who are
unaffiliated with Old WMI and any of its affiliates, other than the
Company Group, and were appointed to represent the interests of, and to
negotiate on an arm's length basis with Old WMI on behalf of, the Scheme
Shareholders;
. the financial condition, assets, results of operations, business and
prospects of the Company and the risks inherent in achieving those
prospects;
. the terms and conditions of the Proposal, including the amount and form
of consideration, the absence of representations and warranties, the
nature of the parties' covenants and agreements, the limited number of
conditions to the obligations of Old WMI (including the absence of a
financing condition) and the rights of the Independent Directors to
withdraw their respective recommendations;
. the condition to the completion of the Scheme that the Scheme receive the
affirmative vote of the holders of a majority in number of those voting
representing three-fourths in value of the Scheme Shares voted, either in
person or by proxy, at the Court Meeting convened by the English High
Court;
. the condition to the completion of the Scheme that the Scheme be
sanctioned by the English High Court;
. the history of the negotiations with respect to the Proposal that, among
other things, led to an increase in Old WMI's offer from approximately
291p to 345p per Ordinary Share, and the belief of the Independent
16
Directors that the Ordinary Shares Consideration was fair and reasonable
so far as the Scheme Shareholders are concerned;
. the fact that the Sterling Consideration represents a premium of
approximately 39 percent over the closing middle market price of the
Ordinary Shares on the London Stock Exchange on June 26, 1998, the last
full trading day before the public announcement of the Proposal;
. the fact that the 39 percent premium represented by the Sterling
Consideration far exceeds customary premiums paid in similar transactions
of publicly held minority shareholdings of other UK companies;
. the stock price and trading volume history of the Ordinary Shares and the
ADRs;
. the fact that the Independent Directors retained and were advised by
independent legal counsel;
. the fact that the Independent Directors retained KPMG Corporate Finance
as independent financial advisors to assist them in evaluating the
Proposal;
. the opinion of KPMG Corporate Finance as to the fairness from a financial
point of view of the Ordinary Shares Consideration to be received by
Scheme Shareholders and the analyses presented to the Independent
Directors by KPMG Corporate Finance; and
. the unwillingness of Old WMI to discuss a sale of its controlling stock
ownership in the Company.
These factors are not intended to be exhaustive. In light of the number and
variety of factors, it was not practicable to assign relative weights to the
foregoing factors; and accordingly relative weights were not assigned.
Although the Independent Directors did consider historical trading prices of
the Ordinary Shares and ADRs, the Independent Directors did not consider
trading prices for the period following the announcement of the Proposal
because they believed that such prices reflected anticipation of the
completion of the Scheme.
The Independent Directors regularly consulted with KPMG Corporate Finance
during the course of their work in connection with their analysis of the
Company and the evaluation of the Proposal. The Independent Directors believe
that the analyses of KPMG Corporate Finance are reasonable.
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS
Opinion of Financial Advisor of the Company
The Independent Directors of the Company have retained KPMG Corporate
Finance to act as their financial advisors with respect to the Proposal and
related matters. KPMG Corporate Finance is acting exclusively for the Company
in connection with the Proposal. KPMG Corporate Finance is not acting for any
other person and KPMG Corporate Finance will not be responsible to any person
other than the Company for providing the protections afforded to clients of
KPMG Corporate Finance or for providing advice in relation to the Proposal or
in relation to the contents of this document or any transaction or arrangement
referred to herein.
At a meeting of the Independent Directors on June 29, 1998, KPMG Corporate
Finance delivered its written opinion to the Independent Directors (the "KPMG
Corporate Finance Opinion"). The KPMG Corporate Finance Opinion states that
KPMG Corporate Finance is of the opinion that the consideration is fair from a
financial point of view to the holders of Scheme Shares and is fair and
reasonable insofar as Scheme Shareholders are concerned.
THE FULL TEXT OF THE KPMG CORPORATE FINANCE OPINION ADDRESSED TO THE
INDEPENDENT DIRECTORS AND DATED AS OF JUNE 29, 1998, WHICH SETS FORTH THE
ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS OF THE REVIEW UNDERTAKEN IN
CONNECTION WITH THE OPINION, IS ATTACHED HERETO AS SCHEDULE D, AND IS
INCORPORATED BY REFERENCE. THE KPMG CORPORATE FINANCE OPINION WAS DELIVERED TO
THE INDEPENDENT DIRECTORS FOR THEIR USE IN CONNECTION WITH THEIR CONSIDERATION
OF THE PROPOSAL AND IS NOT INTENDED TO BE, AND DOES NOT CONSTITUTE, A
RECOMMENDATION TO ANY SCHEME SHAREHOLDER AS TO HOW SUCH SCHEME SHAREHOLDER
SHOULD VOTE
17
WITH RESPECT TO THE SCHEME. THE SUMMARY OF THE KPMG CORPORATE FINANCE OPINION
SET FORTH HEREIN IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF
THE OPINION. SCHEME SHAREHOLDERS ARE URGED TO, AND SHOULD, READ THE KPMG
CORPORATE FINANCE OPINION IN ITS ENTIRETY.
In connection with rendering its opinion, KPMG Corporate Finance reviewed,
among other things, the financial terms and conditions of the Proposal;
reviewed certain historical business and financial information relating to the
Company; reviewed certain internal financial analyses and forecasts for the
Company prepared by its management; reviewed the reported price and trading
activity for the Ordinary Shares; visited certain of the facilities of the
Company; compared certain financial and stock market information for the
Company with similar information for certain other companies the shares of
which are publicly traded; and reviewed the financial terms of certain
business combinations in the waste industry specifically and in other
industries generally. KPMG Corporate Finance also met with members of the
senior management of the Company and its principal operating subsidiaries to
discuss the past and current operations, financial condition and prospects of
the Company, including the financial forecasts relating to the Company. KPMG
Corporate Finance was not asked to, nor did it, recommend a specific price per
Ordinary Share. No limits were placed on KPMG Corporate Finance's review or
analysis by either the Independent Directors or the Company.
In light of Old WMI's position as the majority shareholder in the Company
and the absence of any indication that Old WMI would support either a sale of
the Company or other alternatives to the Proposal involving a third party, an
active solicitation of third party interest in a transaction involving the
Company was not practicable and therefore was not pursued.
KPMG Corporate Finance relied upon the accuracy and completeness of all of
the financial and other information reviewed by it or conveyed to it in
discussions with the Company or Old WMI and has not assumed any responsibility
for any independent verification of such information or any independent
valuation or appraisal of the assets or liabilities of the Company and was not
provided with any such evaluation or appraisal. With respect to the financial
forecasts relating to the Company and the possible financial benefits of the
Proposal to Old WMI, KPMG Corporate Finance has assumed that they have been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of management of the Company as to such matters. In rendering
its opinion, KPMG Corporate Finance assumed no responsibility for such
forecasts or estimates or the assumptions upon which they are based. In
addition, the opinion does not address the underlying business decision of the
Independent Directors to recommend the Scheme. The opinion of KPMG Corporate
Finance is necessarily based on economic, monetary, market and other
conditions as in effect on, and the information available to them as of, the
date of the opinion.
The following is a summary of the material analyses performed by KPMG
Corporate Finance which were reviewed with the Independent Directors in
connection with providing its opinion.
Stock Market Analysis. KPMG Corporate Finance analyzed the historical
movement in the price of the Ordinary Shares on the London Stock Exchange in
order to determine and explain relevant price movement trends. The analysis
was focused on two key areas. First, whether the price movements of the
Ordinary Shares could be explained by factors specifically relating to the
Company and/or general market factors; alternatively, whether events involving
Old WMI (which were not directly relevant to the intrinsic value of the
Company) had impacted the price of the Ordinary Shares. Second, whether in the
(then) current price of the Ordinary Shares there existed (or not) some level
of premium in anticipation of an imminent buy-out by Old WMI of the 20 percent
minority.
A summary of KPMG Corporate Finance's review of the Ordinary Shares price
movement is as follows. Since the flotation of the minority shares in the
Company in 1992, the quoted stock values of the Company and Old WMI have shown
a degree of correlation. On the day of the announcement of the Merger, the mid
market price of the Ordinary Shares rose from 190p to 208p and thereafter rose
rapidly to a level of 247.5p (based upon the London Stock Exchange closing
mid-market price on June 26, 1998, the last full trading day before the public
announcement of the Proposal). The Ordinary Shares Consideration agreed of
345p represents a premium of 82
18
percent on the 190p price on the day of the announcement of the Merger, and 66
percent on the 208p price immediately following the announcement and 39
percent on the 247.5p price as at June 26, 1998. KPMG Corporate Finance's view
is that this increase reflected not an improvement in the underlying
fundamentals of the Company, but a belief among shareholders that USA Waste
would improve the value of an investment in the Company, either by improving
the business or by a buy-out of the minority at a premium to the then current
market price.
Discounted Cash Flow Analysis. KPMG Corporate Finance performed a discounted
cash flow analysis for existing business, new business, potential business
from acquisitions and incremental synergies, based upon certain operating and
other financial assumptions, projections and other information provided by the
management of the Company. A discussion of certain financial projections
prepared by the Company is set forth in "Item 16--Additional Information--
Certain Financial Projections of the Company". KPMG Corporate Finance
primarily relied upon the projections, restated to reflect anticipated results
from certain Hong Kong-based projects at or near completion and the projected
improvement in operating results of the Company's Italian subsidiaries
following a restructuring which was not taken into account in the original
projections, in forming its opinion on the fairness to the Scheme Shareholders
of the Ordinary Shares Consideration. For purposes of the analysis, KPMG
Corporate Finance used discount rates ranging from nine percent to 11 percent
and perpetuity growth rates for cash flows of around three percent, which
resulted in an enterprise value of (Pounds)1.03 billion to (Pounds)1.56
billion, and a per Ordinary Share value of 274p to 415p. KPMG Corporate
Finance subtracted aggregate estimated net debt as of April 30, 1998
(consisting of interest bearing debt net of cash balances) of (Pounds)80
million, equivalent to net debt per Ordinary Share of 21p, from the enterprise
value in arriving at an equity value for the Company. KPMG Corporate Finance
selected a representative range of (Pounds)0.95 billion to (Pounds)1.48
billion implied by this analysis, equating to 253p to 393p per share for the
Ordinary Shares to be acquired.
Comparison with Selected Companies and Transactions. KPMG Corporate Finance
analyzed a range of values based on applying market multiples derived from
companies principally involved in waste activities to the Company's revenue
and earnings stream. KPMG Corporate Finance commenced the analysis with a
review of material distorting items within the Company's historic and
projected earnings in order to determine appropriate figures for adjusted
maintainable earnings. The financial measures used in the analysis comprised
sales of (Pounds)1.1 billion for 1997 (historic), (Pounds)0.9 billion for 1998
(prospective) and (Pounds)1.1 billion for 1999 (prospective+1) and earnings
before interest, taxes, depreciation and amortization ("EBITDA"), adjusted to
exclude exceptional items, of (Pounds)225 million for 1997 (historic),
(Pounds)193 million for 1998 (prospective) and (Pounds)248 million for 1999
(prospective+1).
Having established figures for adjusted maintainable earnings, a range of
multiples were applied to those earnings based on comparable quoted companies
and comparable transactions. Appropriate comparatives were taken from the
following quoted companies: Allied Waste Industries, Inc., Browning Ferris
Industries, Inc. ("BFI"), Caird Group plc, Laidlaw Environmental Services,
Inc., Shanks & McEwan Group plc, SITA S.A., USA Waste, Waste Recycling Group
plc and Old WMI. The multiples selected for KPMG Corporate Finance's analysis
represented the lower end of the range of multiples derived from these
companies to reflect the relative performance of the Company vis a vis the
comparative group. For the comparable transactions, the multiples used were
based on acquisitions by the following companies: Haul Waste Group PLC, BFI,
Vivendi S.A., Laidlaw Inc., Shanks & McEwan plc, SITA S.A., USA Waste, Waste
Recycling Group plc, Groupe Fabricom S.A. and Republic Industries, Inc. The
range of multiples used in the analysis as applied to revenues were historic
multiples of 1.19 to 2.03, prospective of 0.8 to 2.0 and prospective+1 of 0.7
to 1.7 and as applied to adjusted EBITDA were historic multiples of 4.0 to
7.5, prospective of 4.7 to 7.8 and prospective+1 of 4.1 to 6.3.
Based on an approximate number of Ordinary Shares outstanding of 375.2
million, and adjusting to take account of estimated net debt as of April 30,
1998 of approximately (Pounds)80 million and minority interest as at December
31, 1997 of (Pounds)115 million and an amount due in respect of a foreign
income dividend credit of (Pounds)13 million, the range of values per Ordinary
Share implied by reference to revenues was 297p to 540p based on applying the
above range of historic revenues multiples to 1997 sales, 149p to 445p based
applying prospective multiples to 1998 revenues and 159p to 455p based on
applying prospective+1 multiples to 1999 revenues. Based
19
on EBITDA as a financial measure, the implied range of values was 191p to 401p
applying the range of historic EBITDA multiples to the 1997 adjusted EBITDA,
193p to 353p applying prospective multiples to 1998 adjusted EBITDA and 222p
to 367p applying prospective+1 multiples to 1999 adjusted EBITDA.
Analysis of Selected Minority Buy-outs. KPMG Corporate Finance reviewed
information regarding selected transactions in which third parties have bought
out quoted minorities, drawing conclusions as regards the implied valuation of
the 20 percent minority interest in the Company. Buy-outs of minority
shareholdings reviewed comprised Societe Generale de Belgique S.A., Lloyds
Abbey Life PLC, News International plc, Calor Group PLC, The Telegraph plc,
The Isle of Man Steam Packet Co, Gartmore PLC, The Phoenix Timber Group plc
and Ideco Holdings Inc. Excluding News International plc, where the premium
paid for a minority stake was 39 percent, the premiums paid were relatively
consistent at between 15 percent and 20 percent.
KPMG Corporate Finance also analyzed buy-outs of minority holdings by Old
WMI where the premium paid was 10.6 percent for a minority interest in CWM and
27 percent and 26.9 percent, respectively, for interests purchased in Rust and
WTI.
Other Analyses. KPMG Corporate Finance analyzed the buy-out of the minority
interest in the Company from Old WMI's perspective, having regard to the
impact on Old WMI's earnings per share ("EPS"). In this context KPMG Corporate
Finance considered the tax benefits and synergies potentially arising from 100
percent ownership of the Company by Old WMI.
Based on estimated potential immediate cost savings, including closure of
the Company's London headquarters, KPMG Corporate Finance estimated that Old
WMI could justify paying to 345p per Ordinary Share without the transaction
becoming earnings dilutive for Old WMI in 1999.
The summary set forth above does not purport to be a complete description of
the analyses performed by KPMG Corporate Finance, although it is a summary of
the material financial and comparative analyses provided to the Independent
Directors in connection with the delivery of its opinion.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without
considering the analyses as a whole, could create an incomplete view of the
processes underlying the opinion of KPMG Corporate Finance. In arriving at its
fairness opinion, KPMG Corporate Finance considered the results of all such
analyses and did not assign relative weights to any of the analyses.
The analyses were prepared solely for the purpose of KPMG Corporate Finance
providing its opinion to the Independent Directors as to the fairness from a
financial point of view of the consideration to be received under the Scheme
by the holders of Scheme Shares and do not purport to be appraisals or
necessarily reflect the prices at which businesses or securities actually may
be sold, which are inherently subject to uncertainty and may be significantly
more or less favorable than as set forth in these analyses. Similarly, any
estimates incorporated in the analyses performed by KPMG Corporate Finance are
not necessarily indicative of actual past or future values or results, which
may be significantly more or less favorable than any such estimates. No
company utilized as a comparison is identical to the Company or the business
segment for which a comparison is being made, and none of the acquisition
transactions or other business combinations utilized as a comparison is
identical to the Proposal. Accordingly, any analysis or review of publicly
traded companies and business combinations resulting from the transactions is
not mathematical; rather, it involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
companies and other factors that could affect the public trading value of the
companies or company to which they are being compared. This is particularly
true in the case of the Company because of the absence of existing publicly
traded comparable companies. The discount rates and multiples used in the
analyses were considered appropriate after a consideration of current economic
and financial market conditions, including trading multiples and capital
structures of selected public companies and rates of return on debt and equity
investments in public and private companies and a qualitative judgment as to
the most relevant information and its application to the Company. In
connection with the analyses, KPMG
20
Corporate Finance made, and was provided with estimates and forecasts by the
Company based upon, numerous assumptions with respect to industry performance,
general business and economic conditions and other matters, many of which are
beyond the control of the Company and their advisors. Similarly, analyses
based upon forecasts of future results are not necessarily indicative of
actual future results, which may be significantly more or less favorable than
suggested by such analyses. Because such analyses are inherently subject to
uncertainty, being based upon numerous factors or events beyond the control of
the Company, or their advisors, none of the Company, WMI, Old WMI, KPMG
Corporate Finance or any other person assumes responsibility if future results
or actual values are materially different from these forecasts or assumptions.
The opinion of KPMG Corporate Finance necessarily was based on the economic,
market and other conditions as in effect on, and the information made
available to them as of, the date of their opinion. The foregoing summary is
qualified by reference to the written opinion of KPMG Corporate Finance set
forth in Schedule D to this Transaction Statement.
As described above, the opinion and presentation of KPMG Corporate Finance
to the Independent Directors was only one of many factors taken into
consideration by the Independent Directors in making their determination to
recommend the Proposal. In addition, the terms of the Proposal were determined
through negotiations between the Independent Directors and Old WMI and were
approved by the Independent Directors. Although KPMG Corporate Finance
provided advice to the Independent Directors during the course of these
negotiations, the decision to recommend the Proposal was solely that of the
Independent Directors.
KPMG Corporate Finance is an internationally recognized investment banking
and corporate finance advisory firm and is continually engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions. KPMG has in the past provided financial advisory and employment
consulting services to Old WMI and/or its affiliates, including the Company,
and may continue to do so and has received, and may receive, fees for the
rendering of such services.
The Independent Directors selected KPMG Corporate Finance to act as its
corporate finance advisors because of their expertise and reputations in
investment banking advice and mergers and acquisitions work.
In connection with the services of KPMG Corporate Finance as advisors to the
Independent Directors with respect to the Proposal and related matters, the
Company has agreed to pay KPMG Corporate Finance: (i) a fee of (Pounds)100,000
payable in cash upon completion of the review and valuation of the Company,
(ii) a fee of (Pounds)100,000 payable in cash upon the agreement of the terms
of the Proposal, (iii) a weekly fee payable between May 18, 1998 and the date
of posting of the Scheme Document (the Company and KPMG Corporate Finance have
agreed that the weekly fee will be (Pounds)10,000 per week for the first ten
weeks and thereafter on a time cost basis), (iv) a fee of (Pounds)150,000 upon
posting of the Scheme Document to Scheme Shareholders and (v) a fee of
(Pounds)200,000 on completion of the Scheme. In addition, the Company has
agreed to reimburse KPMG Corporate Finance for its reasonable out-of-pocket
expenses and to indemnify it and certain related persons against certain
liabilities arising out of its engagement.
Opinion of Financial Advisor of Old WMI
Old WMI engaged Merrill Lynch to act as Old WMI's exclusive financial
advisor in connection with the Proposal. Old WMI retained Merrill Lynch to act
solely as Old WMI's financial advisor, and not as a financial advisor to the
Company, to assist Old WMI in analyzing, structuring, negotiating and
effecting the Proposal. Merrill Lynch rendered an opinion to the Old WMI Board
that the consideration to be paid by Old WMI pursuant to the Scheme was fair
from a financial point of view to Old WMI (the "Merrill Lynch Opinion"). On
June 29, 1998, Merrill Lynch made a presentation to the Old WMI Board
summarizing the types of analyses underlying the Merrill Lynch Opinion (the
"Merrill Lynch Report") and participated in a telephone conference call with
the Old WMI Board to discuss the Proposal.
THE FULL TEXT OF THE MERRILL LYNCH OPINION, WHICH SETS FORTH THE ASSUMPTIONS
MADE, MATTERS CONSIDERED, AND QUALIFICATIONS AND LIMITATIONS ON THE REVIEW
UNDERTAKEN BY MERRILL LYNCH, IS ATTACHED HERETO AS SCHEDULE E AND IS
INCORPORATED HEREIN BY REFERENCE. THE SUMMARY OF THE MERRILL LYNCH OPINION SET
FORTH IN THIS TRANSACTION STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO THE FULL TEXT OF THE MERRILL
21
LYNCH OPINION. SCHEME SHAREHOLDERS ARE URGED TO READ SUCH OPINION IN ITS
ENTIRETY. THE MERRILL LYNCH OPINION WAS PROVIDED TO THE OLD WMI BOARD FOR ITS
INFORMATION AND IS DIRECTED TO THE FAIRNESS FROM A FINANCIAL POINT OF VIEW OF
THE CONSIDERATION TO BE PAID BY OLD WMI PURSUANT TO THE SCHEME AND DOES NOT
ADDRESS THE MERITS OF THE UNDERLYING DECISION BY OLD WMI TO ENGAGE IN THE
SCHEME AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY SCHEME SHAREHOLDER AS
TO HOW SUCH SCHEME SHAREHOLDER SHOULD VOTE ON THE PROPOSED SCHEME OR ANY
MATTER RELATED THERETO. THE MERRILL LYNCH REPORT WAS INTENDED SOLELY TO
PROVIDE ADDITIONAL INFORMATION FOR THE USE AND BENEFIT OF THE OLD WMI BOARD,
AND WAS NOT PREPARED FOR THE PURPOSE OF ADDRESSING THE MERITS OF THE
UNDERLYING BUSINESS DECISION BY OLD WMI TO ENGAGE IN THE SCHEME.
The summary set forth below does not purport to be a complete description of
the analyses underlying the Merrill Lynch Opinion, the Merrill Lynch Report or
the discussion Merrill Lynch had with the Old WMI Board. The preparation of a
fairness opinion is a complex analytic process involving various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of those methods to the particular circumstances
and, therefore, such an opinion is not readily susceptible to partial analysis
or summary description. In arriving at its opinion, Merrill Lynch did not
attribute any particular weight to any analysis or factor considered by it,
but rather made qualitative judgments as to the significance and relevance of
each analysis and factor. Accordingly, Merrill Lynch believes that its
analyses must be considered as a whole and that selecting portions of its
analyses, without considering all analyses, would create an incomplete view of
the process underlying its opinion.
In performing its analyses, numerous assumptions were made with respect to
industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of Merrill
Lynch, Old WMI and the Company. Any estimates contained in the analyses
performed by Merrill Lynch are not necessarily indicative of actual values or
future results, which may be significantly more or less favorable than
suggested by such analyses. Additionally, estimates of the value of businesses
or securities do not purport to be appraisals or to reflect the prices at
which such businesses or securities might actually be sold. Accordingly, such
analyses and estimates are inherently subject to substantial uncertainty. In
addition, as described above, the Merrill Lynch Opinion was among several
factors taken into consideration by the Old WMI Board in making its
determination to approve the Scheme. Consequently, the Merrill Lynch analyses
described below should not be viewed as determinative of the decision of the
Old WMI Board or Old WMI's management with respect to the fairness of the
consideration to be paid by Old WMI.
In preparing the Merrill Lynch Opinion, Merrill Lynch assumed and relied on
the accuracy and completeness of all information supplied or otherwise made
available to it, discussed with or reviewed by or for it, or publicly
available, and did not assume any responsibility for independently verifying
such information or undertake an independent evaluation or appraisal of any of
the assets or liabilities of the Company. In addition, Merrill Lynch did not
assume any obligation to conduct any physical inspection of the properties or
facilities of the Company. With respect to the financial forecast information
and the Expected Cost Savings (as defined below) furnished to or discussed
with Merrill Lynch by the Company or Old WMI, Merrill Lynch assumed that they
had been reasonably prepared and reflected the best currently available
estimates and judgment of the Company's or Old WMI's management as to the
expected future financial performance of the Company or Old WMI, as the case
may be, and the Expected Cost Savings. Merrill Lynch also assumed that the
final form of the Joint Announcements (as defined below) would be
substantially similar to the last drafts it reviewed.
The Merrill Lynch Opinion is necessarily based upon market, economic and
other conditions as they exist and can be evaluated on, and on the information
made available to it as of, the date of the Merrill Lynch Opinion. Without
limiting the foregoing, the Merrill Lynch Opinion does not address the
potential effects of fluctuations in the US dollar/pounds sterling exchange
rate after the date thereof. Merrill Lynch assumed approximately 375.2 million
Ordinary Shares outstanding and that each ADS represented by ADRs being the
equivalent of two Ordinary Shares and assumed an exchange rate of US
$1.6673:UK (Pounds)1 as of June 23, 1998. Merrill Lynch also assumed that in
the course of obtaining any necessary regulatory or other consents or
approvals (contractual or otherwise) for the Scheme, no restrictions,
including any divestiture requirements or amendments or
22
modifications, will be imposed that will have a material adverse effect on the
contemplated benefits of the Scheme.
In connection with the Merrill Lynch Opinion, Merrill Lynch: (1) reviewed
certain publicly available business and financial information relating to the
Company and Old WMI that Merrill Lynch deemed relevant; (2) reviewed certain
information, including financial forecasts, relating to the business,
earnings, cash flow, assets, liabilities and prospects of the Company, as well
as the amount and timing of the cost savings and related expenses and
synergies expected to result from the Scheme (the "Expected Cost Savings")
furnished to Merrill Lynch by the Company and Old WMI; (3) conducted
discussions with members of senior management of the Company and Old WMI
concerning the matters described above, as well as their respective businesses
and prospects before and after giving effect to the Scheme and the Expected
Cost Savings; (4) reviewed the market prices and valuation multiples for the
Ordinary Shares and compared them with those of certain publicly traded
companies that Merrill Lynch deemed to be relevant; (5) reviewed the results
of operations of the Company and compared them with those of certain publicly
traded companies that Merrill Lynch deemed to be relevant; (6) compared the
proposed financial terms of the Scheme with the financial terms of certain
other transactions that Merrill Lynch deemed to be relevant; (7) participated
in discussions and negotiations among representatives of the Company and Old
WMI and their financial and legal advisors; (8) reviewed the potential pro
forma impact of the Scheme on Old WMI; (9) reviewed the US and UK joint press
releases (the "Joint Announcements"), dated June 29, 1998, describing the
terms of the Scheme and (10) reviewed such other financial studies and
analyses and took into account such other matters as Merrill Lynch deemed
necessary, including an assessment of general economic, market and monetary
conditions.
The following is a summary of the various types of analyses presented to the
Old WMI Board in connection with the rendering of the Merrill Lynch Opinion:
Discounted Cash Flow Analysis. Merrill Lynch performed a discounted cash
flow analysis based upon certain operating and financial assumptions,
forecasts and other information prepared and provided by the management of the
Company for the years 1998 through 2002. In performing the discounted cash
flow analysis, Merrill Lynch used: (i) discount rates from 11 percent to 13
percent and (ii) terminal EBITDA multiples from 6.5x to 7.5x. Merrill Lynch
derived a discounted cash flow valuation based upon the projections provided
by the Company (the "Base Projections") and then derived additional discounted
cash flow valuations by adjusting the Base Projections for the impact of: (a)
certain potential future acquisitions which were included in the Base
Projections (the "Future Company Acquisitions") and (b) the Expected Cost
Savings which were not included in the Base Projections. Merrill Lynch derived
a summary reference range using the Base Projections of $11.20 to $14.35 per
ADR. Merrill Lynch also derived summary reference ranges of: (x) $10.20 to
$12.75 per ADR by excluding Future Company Acquisitions; (y) $11.60 to $14.90
per ADR by including Expected Cost Savings and (z) $10.60 to $13.25 per ADR by
excluding the Future Company Acquisitions and including the Expected Cost
Savings.
Comparison of Selected Public Company Comparables. Merrill Lynch analyzed
certain actual and estimated financial information for the Company and three
other publicly-traded European waste services companies, including Shanks &
McEwan Group PLC, Waste Recycling Group PLC and SITA S.A. (collectively, the
"European Waste Services Group") that Merrill Lynch considered to some extent
comparable to the Company, although not necessarily representative of truly
comparable companies. Merrill Lynch calculated the forward EBITDA multiples
(to the extent of available information) and 1999 price to earnings ratios
(the "1999 P/E Ratios") for the companies. For the European Waste Services
Group, (i) the mean and median of forward EBITDA multiples were each 6.9x and
(ii) the mean and median of the 1999 P/E Ratios were 18.1x and 18.3x,
respectively. Based on the forward EBITDA multiples, Merrill Lynch derived
summary representative ranges of $8.40 to $11.80 per ADR without giving effect
to Expected Cost Savings and $8.85 to $12.45 per ADR after giving effect to
Expected Cost Savings. Based on the 1999 P/E Ratios, Merrill Lynch derived
summary representative ranges of $10.95 to $16.05 per ADR without giving
effect to the Expected Cost Savings and $11.75 to $17.25 per ADR after giving
effect to the Expected Cost Savings.
23
No company in the European Waste Services Group is identical to the Company.
Accordingly, an analysis of the results of the foregoing companies necessarily
involves complex considerations and judgments concerning differences in
financial and operating characteristics of the companies and other factors
that could affect the public trading value of the Company and the companies in
the European Waste Services Group.
Analysis of Selected Acquisition Comparables. Merrill Lynch also reviewed
certain publicly-available information for eight selected acquisitions
involving European target companies. In its discussion with the Old WMI Board,
Merrill Lynch noted that the selected transactions primarily involved the
acquisition of a control position in an unrelated target company and not, as
is the case of Old WMI acquiring the remaining interest in the Company, the
acquisition of a remaining interest of an affiliated entity. Merrill Lynch
calculated historical EBITDA multiples (to the extent of available
information) for the selected transactions. The mean and median of offer
values as multiples of LTM EBITDA for the comparable transactions were each
7.0x. In its discussion with the Old WMI Board, Merrill Lynch noted that,
because the Company's actual historical EBITDA included the results of: (i)
businesses which had recently been divested; (ii) long term contracts which
had recently expired and (iii) businesses which had recently experienced
deteriorating operating results, it had used the Company's projected 1998
EBITDA as an estimate of historical EBITDA from ongoing operations for
purposes of this analysis. Based on its analysis, Merrill Lynch derived
summary reference ranges of $9.40 to $11.10 per ADR without giving effect to
Expected Cost Savings and $9.95 to $11.70 per ADR after giving effect to
Expected Cost Savings.
No company or transaction used in the above analysis as a comparison was
identical to Old WMI or the Scheme, respectively. Accordingly, an analysis of
the results of the comparison is not purely mathematical; rather, it involves
complex considerations and judgments concerning differences in historical
projected financial and operating characteristics of the comparable acquired
companies and other factors that could affect the acquisition value of such
companies and Old WMI.
Merrill Lynch is acting as a financial advisor to Old WMI in connection with
the Scheme and will receive a fee from Old WMI for its services, a significant
portion of which is contingent upon the consummation of the Scheme. In
addition, Old WMI has agreed to indemnify Merrill Lynch for certain
liabilities arising out of its engagement. Merrill Lynch acted as exclusive
financial advisor to Old WMI in connection with its merger with USA Waste, and
is an appointed financial advisor to the Company and has, in the past,
provided financial advisory and financing services to USA Waste and Old WMI
and/or its affiliates, including the Company, and may continue to do so and
has received, and may receive, fees for the rendering of such services. In
addition, in the ordinary course of its business, Merrill Lynch may actively
trade the securities of WMI for Merrill Lynch's own account and for the
accounts of its customers and, accordingly, may at any time hold a long or
short position in such securities.
Merrill Lynch's engagement with Old WMI was formalized in an engagement
letter ("Engagement Letter"), dated June 26, 1998. Pursuant to the Engagement
Letter, Old WMI agreed to pay Merrill Lynch: (i) a fee of $250,000 contingent
upon and payable in cash upon the posting of an explanatory statement with the
English High Court in connection with the Scheme and (ii) a contingent fee of
$1,100,000, less amounts paid pursuant to (i) above, payable upon the Scheme
becoming effective during the period of Merrill Lynch's retention. Old WMI
also agreed to reimburse Merrill Lynch for reasonable out-of-pocket expenses
and reasonable fees and disbursements of its legal counsel. In addition, Old
WMI has agreed to indemnify Merrill Lynch against certain liabilities.
Old WMI retained Merrill Lynch based upon Merrill Lynch's experience and
expertise. Merrill Lynch is an internationally recognized investment banking
and advisory firm. Merrill Lynch, as part of its investment banking business,
is continuously engaged in the valuation of businesses and securities in
connection with mergers and acquisitions, negotiated underwritings,
competitive biddings, secondary distributions of listed and unlisted
securities, private placements and valuations for corporate and other
purposes.
24
ITEM 10. INTERESTS IN SECURITIES OF THE ISSUER
(a) The relevant information in the Scheme Document is contained in Item 4,
Disclosure of interests and dealings, under Part 7, Additional Information,
and is incorporated herein by reference in response to this Item.
(b) Neither the Company nor any of the persons named in response to
paragraph (a) of this Item has effected a transaction in the Ordinary Shares
or the ADRs during the past 60 days.
ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE
ISSUER'S SECURITIES
Participation in the Scheme by Holders of ADRs
Holders of ADRs will be entitled to direct the Depositary to vote on the
Scheme pursuant to the terms of the Deposit Agreement. Section 4.08 of the
Deposit Agreement provides that upon receipt of notice of any meeting or
solicitation of consents or proxies from holders of ADRs, the Depositary will
fix a record date in respect of such meeting for the giving of instructions
for voting such consent or proxy and will mail to the holders of ADRs a notice
(the "Depositary Notice") which will contain the relevant information and
instructions on how to exercise their voting rights or how to instruct the
Depositary to give a discretionary proxy to a person designated by the
Company.
Holders of ADRs who wish to attend the Court Meeting or the Extraordinary
General Meeting should take steps to present their ADRs for cancellation to
the Depositary, as such steps are described in the Depositary Notice to which
this Transaction Statement is attached, so that they become registered holders
of Ordinary Shares prior to 5:30 pm (London time) on October 5, 1998, two days
before those meetings.
Other Arrangements or Agreements
See "Item 16--Additional Information--Certain Agreements" for a discussion
of the following agreements between the Company and certain of its affiliates:
(i) International Development Agreement; (ii) International Business
Opportunities Agreement; (iii) Intercorporate Services Agreement; (iv) Master
License Agreement and (v) Master Dividend Agreement.
ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH REGARD
TO THE TRANSACTION
The Independent Directors consider that the terms of the Proposal are fair
and reasonable so far as the Scheme Shareholders are concerned. The
Independent Directors unanimously recommend that Scheme Shareholders approve
the Scheme and vote in favor of the resolutions necessary to implement it. The
Independent Directors intend to vote their own beneficial holdings to approve
the Scheme at the Court Meeting and in favor of the special resolution to be
proposed at the Extraordinary General Meeting. Upon completion of the Scheme,
it will be binding on all Scheme Shareholders, including the Depositary and
the Independent Directors.
ITEM 13. OTHER PROVISIONS OF THE TRANSACTION
(a) Appraisal rights are not provided under applicable law or under the
Company's Articles of Association and will not be voluntarily accorded by the
Company to Scheme Shareholders in connection with the Scheme. Scheme
Shareholders who object to the Scheme may vote against it at the Court Meeting
and against the special resolution to be proposed at the Extraordinary General
Meeting. In addition, after these meetings have been held, the Scheme must be
sanctioned by the English High Court before it can become effective. At the
Court Hearing, Scheme Shareholders who object to the Scheme would again have
an opportunity to voice their objections. The English High Court may consider
these objections in exercising its discretion to sanction the Scheme. Upon
completion of the Scheme, it will be binding on all Scheme Shareholders
including the Depositary and the Independent Directors. Scheme Shareholders'
rights with respect to the Scheme are discussed in greater detail in "Item 4--
Terms of the Transaction".
25
(b) See "Item 16--Additional Information--Incorporation of Certain
Information by Reference" for information on how to obtain additional
information filed with the SEC by WMI, the Company, Old WMI and USA Waste.
(c) The Scheme does not involve the exchange of debt securities of the
Company, WMI or Old WMI in exchange for the Scheme Shares held by the Scheme
Shareholders.
ITEM 14. FINANCIAL INFORMATION
Financial information concerning the Company is set forth in Part IV of the
Company's Annual Report on Form 20-F for the fiscal year ended December 31,
1997 and is hereby incorporated herein by reference. See "Item--16 Additional
Information--Incorporation of Certain Information by Reference" for
information on how to obtain this report and other information filed with the
SEC by the Company. The relevant information contained in the Scheme Document
under Part 3, Information on the Company, is incorporated herein by reference
in response to this Item.
The following table provides the ratio of earnings to fixed charges and book
value per share for the two most recent fiscal years and the relevant interim
period.
US GAAP UK GAAP
-------------------------------------- --------------------------------------
30-JUN-98 1997 1996 30-JUN-98 1997 1996
------------ ------------ ------------ ------------ ------------ ------------
Earnings to fixed
charges................ 11.11 2.87 0.36 11.34 3.77 0.88
Book value per share.... (Pounds)2.64 (Pounds)2.59 (Pounds)2.82 (Pounds)1.12 (Pounds)0.92 (Pounds)0.84
ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED
In addition to the use of mails, proxies and/or voting instructions may be
solicited by officers and directors and regular employees of the Company and
WMI, without additional remuneration, by personal interviews, written
communication, telephone, telegraph or facsimile transmission. The Company
also will request the Depositary, brokerage firms, nominees, custodians and
fiduciaries to forward proxies and/or voting instructions to the beneficial
owners of Scheme Shares held of record and will provide reimbursement for the
cost of forwarding the material in accordance with customary charges. The
Company has hired CIC to coordinate the solicitation of proxies and/or voting
instructions by and through such holders for a fee of approximately $7,000
plus expenses.
The Company engaged KPMG Corporate Finance to act as its exclusive financial
advisor in connection with the Proposal. Old WMI engaged Merrill Lynch to act
as its exclusive financial advisor in connection with the Proposal. See "Item
9--Reports, Opinions, Appraisals and Certain Negotiations" for a discussion of
the terms of engagement of the financial advisors to the Company and Old WMI.
ITEM 16. ADDITIONAL INFORMATION
Certain Agreements
The Company has entered into certain agreements with Old WMI and various of
its other subsidiaries that are described below.
International Development Agreement. The Company, Old WMI, CWM, WTI, Waste
Management International, Inc. ("WMII"), Waste Management Europe N.V., Rust,
WTI International Holdings Inc. and RIH Inc. are parties to a Third Amended
and Restated International Development Agreement ("IDA"), dated January 1,
1993. Among other things, the IDA: (i) provides that Old WMI, Rust and WTI
shall each vote their Ordinary
26
Shares for the appointment of directors such that one designee of each of Rust
and WTI (or such greater number as shall equal the total number of directors
multiplied by the percentage of outstanding Ordinary Shares so held by such
entity, reduced to the nearest whole number) shall be elected to the Board of
Directors of the Company so long as Rust or WTI (as the case may be) continues
to own, or has the right to acquire from the Company, Ordinary Shares
sufficient for it to own at least 10 percent of the Company's outstanding
Ordinary Shares; (ii) permits Rust and WTI each to maintain beneficial
ownership of the Company's outstanding Ordinary Shares at a level having not
less than 10 percent of the voting power of all outstanding Company securities
at general meetings of the Company (so as to facilitate their meeting certain
accounting objectives under US tax laws) until the earlier of July 1, 2000 or
April 30 in the year following the year in which such option becomes
exercisable (unless prior to such April 30 Rust or WTI, as the case may be,
acquires a sufficient number of Ordinary Shares to maintain at least 10
percent of the voting power), and permits Old WMI to maintain beneficial
ownership of the Company's outstanding Ordinary Shares at a level having not
less than 55 percent of the voting power of all outstanding Company securities
at general meetings of the Company (including amounts held by Rust and WTI, so
long as they remain majority-owned by Old WMI), in each case pursuant to an
option to purchase additional newly issued Ordinary Shares of the Company for
cash at fair market value, which for purposes of such options shall be the
average of the closing sale prices for Ordinary Shares on the London Stock
Exchange (or, if not then traded on the London Stock Exchange on another
principal exchange or market) for the five trading days ending on the fifth
trading day before the date of notification of the option exercise (adjusted
where appropriate for dividends, stock splits, capitalization issues and
issues of Ordinary Shares at less than fair market value) so long as such
option is exercised within certain prescribed time limits (respectively, the
"Anti-Dilution Options" of Rust and WTI and "Consolidation Option" of Old
WMI); (iii) restricts the Company from making certain share issues or
distributions or proposing certain reorganization plans or arrangements which
could dilute Old WMI's, Rust's or WTI's interests under the Consolidation
Option or the Anti-Dilution Options, without in each case obtaining the
consent of each of Old WMI, Rust and WTI; (iv) restricts Rust's and WTI's
ability until July 1, 2000 to sell their Ordinary Shares unless such sales are
made in compliance with United States securities laws; (v) grants certain
rights of first refusal to Old WMI with respect to disposition of Ordinary
Shares by Rust or WTI; (vi) grants certain rights of participation to Rust and
WTI with respect to a disposition of Ordinary Shares by Old WMI and (vii)
grants each of Old WMI, Rust and WTI a number of registration rights under the
Securities Act of 1933 (demand and participation) and rights to have the
Company facilitate sales by Old WMI, Rust and WTI in offerings outside the
United States, in each case at the Company's expense to the extent permitted
by law (except any underwriting commissions).
Issues of new Ordinary Shares by the Company upon exercise of either the
Anti-Dilution Option or the Consolidation Option will not be subject to the
pre-emptive rights which normally apply under English law to new issues of
equity securities for cash, although issues of new Ordinary Shares upon
exercise of the Consolidation Option would be prohibited under London Stock
Exchange rules unless there were at the time a subsisting annual authorization
of the shareholders of the Company (other than Old WMI and, for so long as
they remain subsidiaries of Old WMI, Rust and WTI).
International Business Opportunities Agreement. Pursuant to the First
Amended and Restated International Business Opportunities Agreement dated
January 1, 1993, as amended by and among Old WMI, CWM, WTI, WMII, Rust and the
Company, as amended (the "IBOA"), each of Old WMI, CWM, WTI and Rust has
agreed that, until the later of July 1, 2000 or the date on which Old WMI
ceases to beneficially own a majority of the outstanding voting equity
interests of such subsidiary or ceases to beneficially own a majority of the
outstanding voting equity interests of the Company, and in each case no longer
has an option to obtain such ownership, such company will not engage in waste
management services, collection, storage, processing, treatment or disposal of
hazardous wastes (including hazardous substance remediation services), or
development and construction (where the customer is seeking third-party
operation), or operation of water, wastewater and sewage treatment operations
(including facilities for treating hazardous waste streams), outside North
America (i.e., the United States, its territories and possessions, Canada and
Mexico), except (i) with respect to licensing of technology and minor
interests of CWM, WTI or Rust in publicly held entities; (ii) sales by Old WMI
of
27
recyclables and (iii) with respect to development and operation of waste-to-
energy facilities (as described below). The Company has agreed that for the
same time periods as are applicable to Old WMI, CWM, WTI and Rust as described
above, it will not engage in North America in the type of activities in which
Old WMI, CWM, WTI and Rust have agreed not to engage outside of North America
and to abide by the allocation of certain business opportunities to WTI and
Rust outside North America. Businesses or assets acquired by a party to the
IBOA which are in the domain of another party thereto (according to the
allocation principles described above) must be offered for sale to the other
party at fair market value.
Under the IBOA, opportunities outside of North America, other than in
Germany and Italy, relating to the design, development, construction,
operation and maintenance of waste-to-energy facilities, are allocated to WTI
under the terms of a joint venture framework agreement between WTI and the
Company. The Company has the exclusive allocation of waste-to-energy
opportunities in Germany and Italy. The terms of the joint venture provide
that WTI will have the primary responsibility for the initial identification,
marketing and development of opportunities in the joint venture territories
and will bear the costs relating to these activities. Once a contract has been
secured for a project, the Company is entitled (but not obliged) to subscribe
for 49 percent of the equity of the project available to the Old WMI group as
a whole, and WTI will be entitled to subscribe for the balance. Once approved
as a joint venture project, all further costs relating to the project will be
borne by the parties in proportion to their shareholding. If a project is not
approved for joint development, either party may continue to develop it for
its own account. WTI, however, may not construct or operate any waste-to-
energy project outside of North America without the prior consent of the
Company.
By agreement among the parties, Old WMI is responsible for resolving
business allocation disputes among the Company, CWM, WTI, Rust and Old WMI
which are not controlled by the allocations set out in the previous paragraph.
In this connection, the parties to the agreement have agreed that in order to
minimize the potential for conflicts of interest among various subsidiaries
under the common control of Old WMI, and for so long as Old WMI shall have
beneficial ownership of a majority of the outstanding voting equity interests
of such subsidiary (or an option to obtain such ownership), Old WMI has the
right to direct future business opportunities to the Old WMI-controlled
subsidiary which, in Old WMI's reasonable and good faith judgment, has the
most experience and expertise in that line of business, provided that Old WMI
may not allocate a business opportunity to a particular subsidiary if such
business opportunity would involve that subsidiary in a breach of its non-
compete as described above. Opportunities outside North America relating to
the provision of future waste management services are generally to be
allocated to the Company, except that opportunities outside North America
relating to certain permitted WTI and Rust activities are generally to be
allocated to WTI and Rust. No party is liable for consequential damages,
except for lost profits, for any breach of the IBOA.
Intercorporate Services Agreement. The Company and Old WMI have entered into
an Intercorporate Services Agreement, dated March 9, 1992 (as amended by an
addendum dated March 17, 1992) and effective as of December 31, 1991 (the
"ISA"), pursuant to which Old WMI has agreed to provide to the Company: (i) a
committed $750 million credit facility; (ii) a covenant to pay $285 million as
a capital contribution in respect of certain environmental costs and
liabilities of the Company; (iii) certain insurance and letter of credit and
surety bond procurement services and, at Old WMI's discretion, performance
guarantees; (iv) the right for certain Company employees to participate in Old
WMI retirement and certain other employee benefit arrangements to the extent
they participated in such arrangements at December 31, 1991 and (v) certain
corporate and administrative services. The Company has agreed until 2041 to
indemnify Old WMI, without limit, against any liability or expense which Old
WMI may suffer relating to any liability or obligation of the Company,
whenever arising, other than any environmental liabilities of the Company
which are the subject of the environmental covenant from Old WMI. The ISA will
continue indefinitely unless and until terminated by the Company at any time
or by Old WMI with not less than 30 days' prior notice effective December 31
of any year after 1996 or by Old WMI following the occurrence of certain
events of default. No such termination will affect the continued operation of
the environmental covenant or the Company's agreement to indemnify Old WMI.
Each party has agreed to share certain business information with the other and
maintain the confidentiality thereof. The ISA
28
provides that neither party shall be liable to the other for any consequential
damages (except those arising in connection with liabilities under the
environmental covenant), and that in certain events of force majeure, a non-
performing party shall be excused from performance other than for payment
obligations. Certain matters may be submitted to third party arbitration in
the event of a disagreement between the parties.
Master License Agreement. The Company, Old WMI, CWM, WTI and Rust have
entered into a First Amended and Restated Master License Agreement (the "MLA")
dated January 1, 1993, under which the Company has granted each other party
the right to obtain a license of intangibles and receive ancillary services
from the Company for their respective business activities for use in North
America, and each other party has granted the Company the right to obtain a
license of intangibles and receive ancillary services from each other party
relating to its respective business activities for use outside of North
America. Unless the licensee selects a shorter term, such licenses remain in
effect until the latest of July 1, 2005, the date the grantor or grantee is no
longer majority owned beneficially by Old WMI (and Old WMI no longer has an
option to retain such ownership), and the termination of the useful life of
the facility or equipment incorporating or used with the licensed intangible.
The consideration for each license will be a price based on the fair market
value of a license for the licensed intangible, but will not exceed the most
favorable pricing charged an unaffiliated licensee for a comparable license.
Sublicensing of licensed intangibles is not permitted. All of the parties to
the MLA have retained the right to license their own technology to third
parties anywhere in the world, except as summarized in the next paragraph.
The MLA supplements an Intellectual Property Licensing Agreement dated
September 7, 1990, which provides, among other things, a grant by the Company
to WTI of a 10 year, non-exclusive, royalty-free license, with two successive
five year renewal options, of the BRINI(TM) resource recovery technology owned
by the Company to all of WTI's existing and future waste-to-energy facilities,
so that WTI can develop BRINI(TM) technology systems at or adjacent to its
facilities in connection with the operations of such facility, and an
agreement by the Company not to grant additional licenses to the BRINI(TM)
technology to the owners or operators of waste-to-energy facilities in North
America.
Master Dividend Agreement. Substantially all of the Company's assets are
owned directly and indirectly by Waste Management International B.V.
("WMIBV"), a Netherlands subsidiary, the outstanding equity of which consists
of: 63,750 A shares owned by the Company; 12,750 B shares owned by WMII and
held by SBC Nominees, as nominee of WMII; 12,750 C shares owned by RIH Inc.;
and 12,750 D shares owned by WTI International Holdings Inc. Each of the A, B,
C and D shares (together the "BV Shares") carries one vote at general meetings
of WMIBV. Except with the consent of all the shareholders in WMIBV, future
issues of shares must be on the basis of shares of a particular class being
issued only to the existing holder of shares of that class. In the event of
future issues of further A shares to the Company (e.g., in consideration of
the acquisition by WMIBV of assets owned or acquired by the Company, otherwise
than for cash), each of WMII, RIH Inc. and WTI International Holdings Inc.
will be entitled to subscribe, for cash at par (being NLGI each), for a number
of new B, C or D shares, respectively, sufficient to maintain its respective
voting interest in WMIBV at 12.5 percent.
The Company, WMIBV, WMII, CWM, WTI, RIH Inc., WTI International Holdings
Inc. and SBC Nominees have entered into an Amended and Restated Master
Dividend Deed, dated December 31, 1992 (the "Master Dividend Agreement"),
which governs, among other things, the manner in which dividend payments are
to be declared and paid by the Company and WMIBV, and the liquidation rights
with respect to the Company and WMIBV.
Under the Company's Articles of Association, a dividend may be declared by
the shareholders in general meeting, but no dividend may be declared in excess
of the amount recommended by the Company's Board of Directors (the "Company's
Board"). The Company's Board may, without any prior shareholder approval, pay
to the shareholders such interim dividends as appear to the Company's Board to
be justified by the financial position of the Company. Under the Articles of
Association of WMIBV, dividends may be declared only by the shareholders in
general meeting. In both cases, dividends may only be paid out of the profits
available by law for distribution.
29
Under the Master Dividend Agreement, each of WMII, RIH Inc. and WTI
International Holdings Inc. has undertaken not to claim, and acknowledged that
it has no right to, any dividend on any Ordinary Share held by it from time to
time. Whenever WMIBV pays a dividend to WMII, RIH Inc. and WTI International
Holdings Inc., the Company will pay a dividend in respect of the Ordinary
Shares. The amount of each dividend paid by the Company on each Ordinary Share
(plus the associated tax credit available to UK-resident individual taxpayers
receiving dividends from UK-resident companies) will be equal to the aggregate
dividend simultaneously paid by WMIBV to WMII, RIH Inc. and WTI International
Holdings Inc. (gross of any Netherlands withholding tax) divided by the number
of Ordinary Shares which WMII, RIH Inc. and WTI International Holdings Inc.
hold in the Company. The Master Dividend Agreement prohibits any sale or other
disposition by WMII, RIH Inc. or WTI International Holdings Inc. of any BV
shares, other than to the Company or WMIBV itself.
If the Company's Board determines to pay a dividend to public holders of
Ordinary Shares, but WMIBV is not in a position to pay an equivalent dividend,
the Company may pay such dividend if WMII, RIH Inc. and WTI International
Holdings Inc. so agree. In this event, the amount of the WMIBV dividend not
paid will be treated as in arrears and will be payable in priority to any
subsequent dividend of WMIBV that may be declared.
In addition to the B, C and D shares held by WMII (through its nominee), RIH
Inc. and WTI International Holdings Inc., respectively, WMIBV has also granted
those companies certain participation rights (pursuant to a Participation
Rights Agreement) governed by Netherlands law and conferring on the holders
certain contractual rights against WMIBV. WMIBV has also granted certain other
participation rights which, together with the A Shares, are now vested in the
Company. The benefits of the participation rights are non-transferable, except
to the Company or WMIBV. The combined effect of the Articles of Association of
WMIBV, the Master Dividend Agreement, and the participation rights is that, in
the event of the liquidation of WMIBV, the surplus assets of WMIBV remaining
after its creditors and liquidation expenses have been discharged will be
applied as follows: (i) in paying to the Company on the second anniversary of
WMIBV's liquidation or (if earlier) the first anniversary of the Company's
liquidation any amount by which the assets of the Company are inadequate to
discharge any of its liquidation expenses (or an appropriate portion thereof)
and the claims of the Company's creditors admitted to proof in the Company's
liquidation (or, if the Company is not in liquidation, which would have been
admissible to proof if the Company had commenced liquidation one year after
WMIBV) and of any holders of shares in the Company ranking in a liquidation of
the Company in priority to the Ordinary Shares; (ii) in returning the nominal
amount of all of the BV Shares to the respective holders thereof; (iii) in
paying to each of WMII, RIH Inc. and WTI International Holdings Inc. any
arrears of WMIBV dividends that may have accumulated in proportion to the
amount of such arrears; (iv) in paying to each of WMII, RIH Inc. and WTI
International Holdings Inc. that proportion of any balance of WMIBV's assets
which the ownership of Ordinary Shares by each of them bears to the total
number of Ordinary Shares and (v) in paying to the Company, as the holder of
the A Shares, the whole of any remaining balance. By a combination of the
Articles of Association of the Company and the Master Dividend Agreement, any
surplus assets arising on a liquidation of the Company remaining after
discharging its own liquidation expenses and the claims of its creditors and
any holders if shares ranking in a liquidation of the Company in priority to
the Ordinary Shares, will be distributed pro rata to the holders of the
Ordinary Shares, other than that part of such surplus, if any, which has been
received from WMIBV, which, net of any attributable tax, will be distributed
only to the public holders of Ordinary Shares.
In addition, the Company has entered into certain additional agreements with
affiliates of the Company. A discussion of these additional agreements is
contained in the Scheme Document in Item 6, Material Contracts, under Part 7,
Additional Information, and is incorporated herein by reference in response to
this Item.
Certain Financial Projections of the Company
The Company does not as a matter of course publicly disclose internal
budgets, plans, estimates, forecasts or projections as to future revenues,
earnings or other financial information. The projected financial data which
follows reflect certain selected information which was contained in
projections prepared by management of the Company and furnished to Old WMI,
Old WMI's advisors and KPMG Corporate Finance. These projections were based
upon a variety of estimates and assumptions, the material ones of which are
set forth below. The
30
estimates and assumptions underlying the projections involved judgments with
respect to, among other things, future economic, competitive, regulatory and
financial market conditions, exchange rates, political risk and future
business decisions which may not be realized and are inherently subject to
significant business, economic, competitive and regulatory uncertainties, all
of which are difficult to predict and many of which are beyond control of the
Company. While the Company believes these estimates and assumptions to have
been reasonable, there can be no assurance that the projections will be
accurate, and actual results may vary materially from those shown. In light of
the uncertainties inherent in forward looking information of any kind, the
inclusion of these projections herein should not be regarded as a
representation by the Company, Old WMI, WMI or any other person that the
anticipated results will be achieved and investors are cautioned not to place
undue reliance on such information.
The Company does not intend to update or otherwise revise the information
presented herein to reflect circumstances existing after the date of the most
recent financial statements incorporated by reference in this Transaction
Statement or to reflect the occurrence of unanticipated events. The
information presented herein should be read together with the financial
information concerning the Company as set forth in Part IV of the Company's
Annual Report on Form 20-F for the fiscal year ended December 31, 1997 which
is incorporated by reference in this Transaction Statement. The following
financial data reflects certain information that was contained in the
projections prepared by management of the Company.
THE PROJECTIONS ARE NOT INTENDED TO CONSTITUTE A FORECAST OF PROFITS BY THE
COMPANY OR ITS DIRECTORS AND SHAREHOLDERS SHOULD NOT RELY ON SUCH PROJECTIONS
IN MAKING ANY DECISION ABOUT THEIR INVESTMENT IN THE COMPANY.
CERTAIN FINANCIAL PROJECTIONS FOR THE YEAR ENDING DECEMBER 31,
((Pounds) MILLIONS)
1998 1999 2000 2001 2002
---- ----- ----- ----- -----
Revenue...................................... 926 1,111 1,224 1,352 1,489
EBIT......................................... 123 130 155 191 224
EBITDA....................................... 226 251 286 333 379
Net Income (1)............................... 59 65 77 96 115
- --------
(1) Net income includes certain non-recurring items in 1998 and 1999.
The Company operates in eighteen countries each of which is subject to
unique environmental, economic, political, regulatory and business conditions.
The inflation, growth, exchange rates and other factors can vary substantially
in the countries in which the Company operates, or is considering entering.
The assumptions presented below are the overall Company assumptions (unless
otherwise disclosed) made when preparing the financial projections.
Subject to the qualifications and limitations stated above, the information
presented herein generally relies upon the following material assumptions and
bases for the projections.
1. It was assumed that the inflation rate would be between 1.8% and 1.9%
per annum.
2. Volume growth, which includes increased business for the Company as a
result of general economic growth conditions and the Company's ability
to attract new business, was assumed to be between 2.1% and 2.3% of
prior year's revenue.
3. It was assumed that the Company would be able to achieve operating cost
efficiencies which would reduce the costs of the Company. The
assumptions varied by country and in some cases in each year of the
projection and ranged from zero to five percent.
4. It was assumed that the Company would complete acquisitions or new
projects each year that would result in revenue growth of between 5.8%
and 6.5% of the prior year's revenue. It was generally assumed that
certain operating synergies would be achieved as a result of these new
acquisitions. In addition, it was assumed that the Company would
complete an equity investment in Brazil in 1998 (which investment was
completed in July 1998).
5. Capital expenditures, excluding the cost of acquisitions, were expected
approximately to equal the prior year's depreciation plus an allowance
for volume growth.
31
6. It was assumed that there would be no change in the Company's dividend
policy, and that debt financings would be obtained at rates generally
similar to conditions existing at the time that the financial
projections were prepared.
7. The Company reports its results in pounds sterling. The effect of
exchange rate changes can have a significant impact on both revenue and
income. The financial projections assumed that the movement of exchange
rates would increase revenues by approximately 10% in 1999 compared to
the 1998 projected revenue, and would be stable thereafter.
8. Various scenarios were examined by the Company regarding potential
savings which could be achieved; however, no synergies or savings as a
result of the Proposal are included in the financial projections above.
9. The projections were produced on the assumption that the Company would
be utilizing US generally accepted accounting principles.
Cautionary Statement Concerning Forward-Looking Statements
Certain matters discussed herein are forward-looking statements that involve
risks and uncertainties. Forward-looking statements include the information
set forth above concerning the projected consolidated income statement data as
to the years ending December, 31, 1998 through December 31, 2002. Such
information has been included in this Transaction Statement for the limited
purpose of giving the Company's stockholders access to financial projections
by the Company's management that were made available to Old WMI. The
information was based on assumptions concerning the Company's services and
business prospects in the years 1998 through 2002. The information also was
based on other revenue and operating assumptions. Information of this type is
based on estimates and assumptions that are inherently subject to significant
economic and competitive uncertainties and contingencies, all of which are
difficult to predict and many of which are beyond the Company's control.
Accordingly, there can be no assurance that the projected results would be
realized or that actual results would not be significantly higher or lower
than those set forth above. In addition, the consolidated income statement
data as to the years ending December 31, 1998 through December 31, 2002 were
not prepared with a view to public disclosure or compliance with the published
guidelines of the SEC or the guidelines established by the American Institute
of Certified Public Accountants or any similar UK body regarding projections
and forecasts and are included in this Transaction Statement only because such
information was made available to Old WMI. Neither the Company's nor Old WMI's
independent accountants have examined or applied any agreed upon procedures to
this information and, accordingly, assume no responsibility for this
information. None of the Company, Old WMI, WMI or any other party assumes any
responsibility for the accuracy and validity of the projections.
Certain Civil Proceedings
In June 1998, an alleged holder of ADRs filed a putative class action
complaint in the Circuit Court of Cook County, Chicago, Illinois, naming Old
WMI, the Company and several directors of the Company as defendants. The
complaint seeks to enjoin the completion of the Scheme or, in the alternative,
rescission or compensatory damages in the event the Scheme is completed. Among
other things, the complaint asserts that the completion of the Scheme will
constitute a breach of defendants' fiduciary duties to the holders of ADRs
and, if the Scheme is completed, the holders of ADRs will be denied a proper
premium for their ADRs. WMI, on behalf of Old WMI, the Company and the named
directors intend to contest this litigation vigorously.
In July 1998, a putative class of alleged holders of Company Ordinary Shares
filed a complaint in the Circuit Court of Cook County, Chicago, Illinois,
naming Donald F. Flynn and Old WMI as defendants. The complaint seeks to
enjoin the completion of the Scheme or, in the alternative, rescission or
compensatory damages in the event the Scheme is completed. Among other things,
the complaint asserts that the completion of the Scheme will constitute a
breach of defendants' fiduciary duties to the shareholders of the Company (Mr.
Flynn is a
32
director of the Company, and Old WMI is its controlling shareholder) and that,
if the Scheme is completed, the shareholders of the Company will be denied a
proper premium for their Ordinary Shares. WMI, on behalf of Old WMI, and Mr.
Flynn intend to contest this litigation vigorously.
Incorporation of Certain Information by Reference
This Transaction Statement incorporates by reference herein the following
documents filed with the SEC pursuant to the Exchange Act:
1. The section of the Joint Proxy Statement entitled "The Companies";
2. The Company's Annual Report on Form 20-F filed with the SEC on March
30, 1998;
3. The Company's Report of Foreign Private Issuer on Form 6-K filed with
the SEC on April 27, 1998;
4. The Company's Report of Foreign Private Issuer on Form 6-K filed with
the SEC on July 6, 1998;
5. The Company's Report of Foreign Private Issuer on Form 6-K filed with
the SEC on July 21, 1998; and
6.The Company's Report of Foreign Private Issuer on Form 6-K filed with
the SEC on July 31, 1998.
All documents and reports subsequently filed by the Company pursuant to
Section 12(b) of the Exchange Act after the date of this Transaction Statement
and prior to the date of the Effective Date shall be deemed to be incorporated
by reference in this Transaction Statement and to be a part hereof from the
date of filing of such documents of reports. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Transaction
Statement to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Transaction Statement.
This Transaction Statement incorporates documents by reference which are not
presented herein or delivered herewith. Such documents are on file with the
SEC and may be inspected without charge at the SEC's principal office in
Washington, D.C., and copies of all or any part thereof may be obtained from
the Public Reference Section, Securities and Exchange Commission, Washington,
D.C. 20549, upon payment of the prescribed fees. In addition, reports, proxy
statements and other information filed electronically by WMI, Old WMI and USA
Waste are available at the SEC's worldwide web site at http:\\www.sec.gov.
ITEM 17. MATERIAL TO BE FILED AS EXHIBITS
17(b)(1) Fairness opinion of KPMG Corporate Finance, a division of KPMG.
(Reference is made to Schedule D of the Transaction Statement)
17(b)(2) Fairness opinion of Merrill Lynch & Co., Inc. (Reference is made
to Schedule E of the Transaction Statement)
17(b)(3) Materials prepared for the Independent Directors of Waste
Management International plc by KPMG Corporate Finance, a
division of KPMG.
17(b)(4) Materials prepared for the Board of Directors of Waste
Management, Inc. by Merrill Lynch & Co., Inc.
17(c)(1) Deposit Agreement dated as of April 1, 1992, among Citibank,
N.A., as Depositary, the Company, and the holders from time to
time of ADRs.*
17(c)(2) Notice to ADR holders from the Depositary dated as of [ ].*
17(d)(1) Scheme of Arrangement Document, dated [ ], 1998. (Reference
is made to Schedule A of the Transaction Statement)
- --------
*To be filed as an amendment.
33
DRAFT
SCHEDULE A
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. IF YOU ARE
IN ANY DOUBT AS TO THE ACTION YOU SHOULD TAKE, YOU ARE RECOMMENDED TO SEEK
YOUR OWN FINANCIAL ADVICE IMMEDIATELY FROM YOUR STOCKBROKER, BANK MANAGER,
SOLICITOR, ACCOUNTANT OR OTHER INDEPENDENT FINANCIAL ADVISER AUTHORISED UNDER
THE FINANCIAL SERVICES ACT 1986.
If you have sold or otherwise transferred all of your Ordinary Shares, please
send this document and the accompanying documents at once to the purchaser or
transferee, or to the stockbroker, bank or other agent through whom the sale
or transfer was effected, for transmission to the purchaser or transferee.
- -------------------------------------------------------------------------------
RECOMMENDED PROPOSAL
FOR
WASTE MANAGEMENT INTERNATIONAL PLC
TO BECOME WHOLLY OWNED BY
WASTE MANAGEMENT, INC.
TO BE EFFECTED BY MEANS OF A
SCHEME OF ARRANGEMENT
UNDER SECTION 425 OF THE COMPANIES ACT 1985
- -------------------------------------------------------------------------------
A letter of recommendation from Sir William Barlow on behalf of the
Independent Directors appears on pages 7 to 10.
Notices of the Court Meeting and the Extraordinary General Meeting of the
Company, which will be held at the offices of Slaughter and May, 4 Coleman
Street, London EC2V 5DB, on 7 October 1998, are set out at the end of this
document.
SHAREHOLDERS ARE ASKED TO COMPLETE THE ENCLOSED FORMS OF PROXY IN ACCORDANCE
WITH THE INSTRUCTIONS PRINTED THEREON AS SOON AS POSSIBLE, BUT IN ANY EVENT SO
AS TO BE RECEIVED BY THE COMPANY'S REGISTRAR, COMPUTERSHARE SERVICES PLC, PO
BOX 82, CAXTON HOUSE, REDCLIFFE WAY, BRISTOL, BS99 7YA, NOT LATER THAN 48
HOURS BEFORE THE RELEVANT MEETING. FORMS OF PROXY FOR THE EXTRAORDINARY
GENERAL MEETING WILL NOT BE VALID IF LODGED AFTER THIS TIME. IF FORMS OF PROXY
FOR THE COURT MEETING ARE NOT LODGED BY THEN, THEY MAY BE HANDED TO THE
CHAIRMAN OF THE COURT MEETING BEFORE THE START OF THE COURT MEETING. THE
ACTION TO BE TAKEN BY SHAREHOLDERS IS DETAILED ON PAGES 3 AND 16 OF THIS
DOCUMENT.
KPMG Corporate Finance is acting exclusively for the Company in connection
with the Proposal. KPMG Corporate Finance is not acting for any other person
(including any recipient of this document) and KPMG Corporate Finance will not
be responsible to any person other than the Company for providing the
protections afforded to clients of KPMG Corporate Finance or for providing
advice in relation to the Proposal or in relation to the contents of this
document or any transaction or arrangement referred to herein.
Merrill Lynch International, which is regulated in the UK by the Securities
and Futures Authority Limited, is acting exclusively for WMI in connection
with the Proposal. Merrill Lynch International is not acting for any other
person (including any recipient of this document) and Merrill Lynch
International will not be responsible to any person other than WMI for
providing the protections afforded to clients of Merrill Lynch International
or for providing advice in relation to the Proposal or in relation to the
contents of this document or any transaction or arrangement referred to
herein.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
FAIRNESS OR MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF
THE INFORMATION CONTAINED WITHIN THIS DOCUMENT. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
CONTENTS
PAGE
EXPECTED TIMETABLE OF PRINCIPAL EVENTS 3
ACTION TO BE TAKEN 3
DEFINITIONS 4
PART 1 LETTER FROM SIR WILLIAM BARLOW ON BEHALF OF THE INDEPENDENT
DIRECTORS 7
PART 2 EXPLANATORY STATEMENT
1.Introduction 11
2.Summary of the terms of the Scheme 12
3. Court Meeting and Extraordinary General Meeting 12
4. Information for holders of ADRs 13
5. Financial effects of the Scheme on Scheme Shareholders 13
6. Conditions and operation of the Scheme 14
7. Settlement and cancellation of listing 14
8. Management and employees 15
9. Share Option Plans 15
10. Taxation 15
11. Information on the Company 15
12. Information on WMI and Old WMI 16
13. Directors' interests 16
14. Action to be taken 16
15. Further information 17
PART 3 INFORMATION ON THE COMPANY 18
PART 4 INFORMATION ON WMI 51
PART 5 TERMS AND CONDITIONS 61
PART 6 TAXATION INFORMATION FOR UK AND US HOLDERS OF ORDINARY SHARES
OR ADRS 63
PART 7 ADDITIONAL INFORMATION 65
SCHEME OF ARRANGEMENT 75
NOTICE OF COURT MEETING 79
NOTICE OF EXTRAORDINARY GENERAL MEETING 80
2
EXPECTED TIMETABLE OF PRINCIPAL EVENTS
Latest time for receipt
of proxies for the:
Court Meeting 10.00 am on 5 October 1998*
Extraordinary General
Meeting 10.30 am on 5 October 1998
Court Meeting 10.00 am on 7 October 1998
Extraordinary General
Meeting 10.30 am on 7 October 1998**
Latest time for receipt
of Dollar Election Form 5.30 pm on 2 November 1998
Court hearing of petition
to sanction the Scheme 2 November 1998
Last day of dealings in
Ordinary Shares 2 November 1998
Record Date of the Scheme 2 November 1998
Effective Date of the
Scheme 3 November 1998
* It is requested that forms of proxy for the Court Meeting be lodged at
least 48 hours prior to the time appointed for the Court Meeting,
although forms of proxy not so lodged may be handed to the Chairman of
the Court Meeting at the Court Meeting. Forms of proxy for the
Extraordinary General Meeting must be lodged at least 48 hours prior to
the Extraordinary General Meeting.
** Or as soon thereafter as the Court Meeting shall have concluded or been
adjourned.
UNLESS OTHERWISE STATED ALL REFERENCES TO TIME IN THIS DOCUMENT REFER TO
LONDON TIME.
DOCUMENTS ENCLOSED
You will find enclosed with this document:
-- a Transaction Statement in relation to the Proposal prepared for the
purposes of the US Securities Exchange Act of 1934;
-- a pink form of proxy for use at the Court Meeting;
-- a blue form of proxy for use at the Extraordinary General Meeting; and
-- a green Dollar Election Form.
ACTION TO BE TAKEN
Whether or not you intend to be present at the Court Meeting or the
Extraordinary General Meeting, it is important that you complete, sign and
return the pink and blue forms of proxy as soon as possible, and in any
event so as to arrive at the offices of Computershare Services PLC, PO Box
82, Caxton House, Redcliffe Way, Bristol BS99 7YA, not later than 10.00 am
and 10.30 am, respectively, on 5 October 1998. If the pink form of proxy is
not so lodged it may be handed to the Chairman of the Court Meeting at that
meeting. The completion and return of the forms of proxy will not prevent
you from attending either or both of the meetings and voting in person if
you wish to do so.
Shareholders wishing to elect for the Dollar Election in respect of their
Scheme Shares should complete, sign and return the Dollar Election Form so
as to arrive at the offices of Computershare Services PLC, PO Box 82, Caxton
House, Redcliffe Way, Bristol BS99 7YA, not later than 5.30 pm on 2 November
1998. Shareholders who wish to receive payment in sterling do not need to
complete the Dollar Election Form.
3
DEFINITIONS
Unless the context requires otherwise, the following definitions apply
throughout this document except in the text of the Scheme and the notices of
Meetings, and in the accompanying forms of proxy and Dollar Election Form:
"Act" the UK Companies Act 1985 (as amended)
"ADR" an American Depositary Receipt, issued by the
Depositary, evidencing ADSs
"ADS" an American Depositary Share representing the
right to receive two Ordinary Shares
"Code" The City Code on Takeovers and Mergers
"Company" Waste Management International plc
"Court" the High Court of Justice in England and Wales
"Court Meeting" the meeting of Scheme Shareholders convened by
order of the Court to consider the Scheme,
notice of which meeting is set out on page 79
of this document
"CREST" a relevant system (as defined in the CREST
Regulations) in respect of which CRESTCo
Limited is the Operator (as defined in the
CREST Regulations)
"CREST Regulations" the UK Uncertificated Securities Regulations
1995 (SI 1995 No. 3272)
"Depositary" Citibank, N.A. of 111 Wall Street, 20th Floor,
Zone 7, New York, New York 10043, USA, as
depositary in respect of the ADRs
"Directors" the directors of the Company
"Dollar Election" the election under which Scheme Shareholders
may elect to receive all, but not part, of
their cash entitlement under the Scheme in US
dollars, details of which are set out in
paragraph 2 of the Explanatory Statement
"Dollar Election Form" the form of election accompanying this document
for use in connection with the Dollar Election
"Dollar Exchange Rate" the mid-point spot rate for conversion of
pounds sterling into US dollars at 4.00 pm on
the Effective Date derived from the WM Reuters
page showing such rate
"Effective Date" the date on which the Scheme becomes effective
in accordance with its terms
"Explanatory Statement" the explanatory statement prepared in
accordance with section 426 of the Act set out
on pages 11 to 17 of this document
"Extraordinary General
Meeting"
the extraordinary general meeting of the
Company, notice of which is set out on pages 80
and 81 of this document
4
"Group" the Company and its subsidiaries
"Hearing Date" the date of the hearing by the Court of the
petition to sanction the Scheme
"Independent Directors" Sir William Barlow (Chairman), Mr Jan Ekman, Mr
Giorgio Porta and Dr Manfred Scholz, being the
Directors who are independent of the WMI Group
(excluding the Group)
"London Stock Exchange" London Stock Exchange Limited
"Meetings" the Court Meeting and the Extraordinary General
Meeting
"Merger" the merger of Old WMI with a wholly owned
subsidiary of WMI, which was completed on 16
July 1998
"Merrill Lynch" Merrill Lynch International
"NYSE" New York Stock Exchange
"Old WMI" the company formerly known as Waste Management,
Inc. and
now called Waste Management Holdings, Inc., a
wholly owned subsidiary of WMI
"Optionholders" holders of options to subscribe for Ordinary
Shares under the Share Option Plans
"Ordinary Shares" ordinary shares of 10p each in the capital of
the Company
"Panel" the UK Panel on Takeovers and Mergers
"Proposal" the proposal set out in this document for the
Company to become wholly owned by WMI
"Record Date" the business day immediately preceding the
Effective Date
"Scheme" or "Scheme of the scheme of arrangement under section 425 of
Arrangement" the Act set out on pages 75 to 78 of this
document, together with any modification,
addition or condition approved or imposed by
the Court
"Scheme Shareholders" holders of the Scheme Shares
"Scheme Shares" the Ordinary Shares in issue at the date of
this document, other than WMI Group Shares,
together with:
(i) any additional Ordinary Shares which may
be issued after the date of this document
but before 5.30 pm on the business day
immediately before the Court Meeting; and
(ii) any further Ordinary Shares which may be
issued after the period referred to in
paragraph (i) above but before 5.30 pm on
the business day immediately before the
Hearing Date and on terms that they are
bound by the Scheme
5
"Shareholders" holders of Ordinary Shares
"Share Option Plans" means the Waste Management International plc
Share Option Plan for Independent Directors and
the Waste Management International plc Share
Option Plan
"Transaction Statement" the Schedule 13e-3 transaction statement filed
with the US Securities and Exchange Commission
in respect of the Scheme, a copy of which has
been posted to Scheme Shareholders with a copy
of this document
"Wessex" Wessex Water Plc
"WMI" Waste Management, Inc. (formerly USA Waste
Services, Inc.)
"WMI Group" WMI and its subsidiaries
"WMI Group Shares" those issued Ordinary Shares in which any
member of the WMI Group is beneficially
interested as at the date of this document
"WMII" Waste Management International, Inc., a wholly
owned subsidiary of WMI
6
PART 1
LOGO WASTE MANAGEMENT INTERNATIONAL PLC
Registered in England No. 2669336
DIRECTORS: REGISTERED OFFICE:
EG Falkman (Chairman) 3 Shortlands
BGA Gabrielson Hammersmith International Centre
PB Dessing London
DF Flynn W6 8RX
JM Holsten
RS Miller
Sir William Barlow* . September 1998
J Ekman*
G Porta*
Dr M Scholz*
(* Independent Directors)
To Shareholders and, for information only, to ADR holders and Optionholders
Dear Shareholder,
RECOMMENDED PROPOSAL FOR THE COMPANY TO BECOME
WHOLLY OWNED BY WMI
1.INTRODUCTION
As announced on 29 June 1998, it is proposed that the Company should become
wholly owned by WMI. It is intended that the Proposal should be effected by
means of a Scheme of Arrangement under section 425 of the Act, further details
of which are set out in the Explanatory Statement which follows this letter.
Before the Proposal can be implemented it must be approved at the Court
Meeting and at the Extraordinary General Meeting of the Company, both convened
for 7 October 1998.
I am now writing to you to explain the background to, and the terms of, the
Proposal and the financial effects of the Scheme for Scheme Shareholders. Mr
Jan Ekman, Mr Giorgio Porta, Dr Manfred Scholz and I, as the Independent
Directors, have considered and now recommend the Proposal to you. In reaching
our conclusions, the Independent Directors have received financial advice from
KPMG Corporate Finance, the substance of which is set out in paragraph 8 of
this letter. The remaining Directors are connected with WMI and are therefore
not Independent Directors. Accordingly, they did not participate in
considering whether or not to recommend the Proposal and have not joined in
the recommendation given in this letter by the Independent Directors.
2. SUMMARY OF THE TERMS OF THE SCHEME
Under the Proposal, if the Scheme becomes effective, Scheme Shareholders will
receive:
FOR EACH SCHEME SHARE 345P IN CASH
7
The Proposal values the entire existing issued share capital of the Company at
approximately (Pounds)1,295 million and the existing Scheme Shares at
approximately (Pounds)260 million.
This represents a premium of approximately 39 per cent. to the closing middle
market price of 247.5p per Ordinary Share on the London Stock Exchange on 26
June 1998, the last business day before the announcement of the Proposal.
Under the Dollar Election, Scheme Shareholders may elect to receive all (but
not some only) of their cash entitlement under the Scheme in US dollars on the
following basis:
FOR EACH SCHEME SHARE THE US DOLLAR EQUIVALENT OF 345P
CALCULATED USING THE DOLLAR
EXCHANGE RATE
Elections for the Dollar Election will be irrevocable once made.
3. BACKGROUND TO AND REASONS FOR THE PROPOSAL
(a)Background to the Proposal
The Company was established in 1991 as a wholly owned subsidiary of Old WMI to
assume substantially all of the waste management operations of Old WMI located
outside North America. In April 1992, 20 per cent. of the issued share capital
of the Company was offered for sale to the public in the form of Ordinary
Shares and ADSs. The Ordinary Shares were admitted to the Official List of the
London Stock Exchange and the ADSs were quoted on the NYSE. The purpose of the
offering was to increase access to equity markets, raise the profile and
status of the Company and enhance the potential to expand the business by
utilising Ordinary Shares as consideration for the acquisition of additional
businesses.
Notwithstanding this offering, the Company remained under the control of Old
WMI which, through its subsidiaries, continued to own approximately 80 per
cent. of the issued Ordinary Shares and continued to influence the Company's
strategic direction. Since the offering in 1992, the Company has not used
Ordinary Shares to acquire additional businesses.
Following the offering in 1992, the closing middle market price of the
Ordinary Shares on the London Stock Exchange reached a peak of 790p on 16
November 1992. This compares to the average closing middle market price of the
Ordinary Shares on the London Stock Exchange over the twelve months preceding
the date of the announcement of the Proposal of 227p per share. The last date
on which the price of the Ordinary Shares on the London Stock Exchange was
equal to or greater than the amount available to Scheme Shareholders under the
Scheme of 345p per Scheme Share was 19 July 1996.
(b)Reasons for the Proposal
On 10 March 1998, Old WMI announced that it had agreed to merge with a wholly
owned subsidiary of WMI (then known as USA Waste Services, Inc.). The Merger
was completed on 16 July 1998. Following the announcement of the Merger, an
approach was made by Old WMI to the Independent Directors with a view to
obtaining their recommendation for a transaction whereby the Company would
become wholly owned by WMI. Negotiations between Old WMI and the Independent
Directors on the terms of such a transaction resulted in the terms of the
Proposal being agreed and the Independent Directors agreeing to recommend the
Proposal to the Scheme Shareholders.
The approach by the directors of Old WMI to the Independent Directors followed
a period of deliberation by the board of the Company in which the Group's
growth potential and the possibility for increasing shareholder value through
a variety of mechanisms were assessed. This assessment also included
consideration of the difficult trading and operational conditions being
experienced within certain of the Group's businesses and the short term lack
of suitable investment and acquisition opportunities. The results of this
process have led the board of the Company to conclude that there is limited
prospect of an improvement in the financial performance of the Group
8
occurring in the short term such as would result in a significant upward
revaluation of the Company's share price. Acting on behalf of the Independent
Directors, KPMG Corporate Finance has reviewed the Group's historical results,
strategic plans and current operations. The Independent Directors believe the
analysis conducted by KPMG Corporate Finance has confirmed the conclusions of
the board of the Company.
In reaching the decision to recommend the Proposal, the Independent Directors
also took into account a number of other factors. In particular, the
Independent Directors acknowledged the intention of each of Old WMI and WMI to
retain its controlling interest in the Company. This intention necessarily
precluded any investigation into the possibility of selling the Company to a
third party. In addition, the Independent Directors concluded that it was
unlikely that access to the equity markets would be required to fund growth in
the foreseeable future, as the Company was likely to have sufficient credit
facilities available to it both from its parents and from the financial
markets and that debt finance was likely to be the preferred means of
financing the Group's anticipated needs. Furthermore, in the anticipated
absence of future equity offerings and issues of Ordinary Shares for the
purpose of acquiring additional businesses, it is not clear that the
significant expenses which result from the Company's status continue to be
justified. The Independent Directors also concluded that none of the
mechanisms considered which may have increased shareholder value were
sufficiently certain or adequate to offer greater attraction than the
Proposal.
The Independent Directors also considered the financial effects of the
Proposal on capital value and income for Scheme Shareholders, details of which
are set out on pages 13 and 14 of this document.
In light of the above, the Independent Directors considered that it was
appropriate for the Scheme Shareholders to be given the opportunity to realise
their investment in the Company on terms which the Independent Directors
considered fair and reasonable so far as the Scheme Shareholders are
concerned.
The Proposal is expected to simplify WMI's corporate organisational and
management structure and facilitate the integration of the Company into the
new management structure of WMI. It is also anticipated that the proposed
transaction will enhance the operating flexibility of the WMI Group, reduce
the WMI Group's expenses and simplify WMI Group management decisions.
4.EMPLOYEES
WMI has confirmed that, following implementation of the Scheme, the existing
rights, including pension rights, of employees of the Company will be fully
safeguarded. Your attention is drawn to paragraph 8 of the Explanatory
Statement which follows this letter.
5. TAXATION
Taxation information for United Kingdom and United States Shareholders or ADR
holders is summarised in Part 6 of this document. These summaries are intended
only as a general guide to current law and practice. ANYONE WHO IS IN ANY
DOUBT AS TO HIS TAX POSITION, OR WHO IS SUBJECT TO TAX IN ANY JURISDICTION
OTHER THAN THE UNITED KINGDOM OR THE UNITED STATES, SHOULD CONSULT AN
APPROPRIATE PROFESSIONAL ADVISER.
6. IMPLEMENTATION OF THE SCHEME
Implementation of the Scheme will require, inter alia, the approval of Scheme
Shareholders at the Court Meeting which has been convened by order of the
Court (at which the approval of a majority in number of those voting
representing 75 per cent. in value of the Scheme Shares voted, either in
person or by proxy, will be required) and the passing of a special resolution
by Shareholders at the Extraordinary General Meeting. Holders of WMI Group
Shares are not entitled to vote at the Court Meeting, but are entitled to and
will vote at the Extraordinary General Meeting. Further details of the special
resolution to be considered at the Extraordinary General Meeting are given in
paragraph 3 of the Explanatory Statement which follows this letter.
If the Scheme becomes effective, it will be binding on all Scheme
Shareholders, including the Depositary, regardless of whether they attended or
voted at the Meetings.
Details of the conditions and operation of the Scheme are set out in paragraph
6 of the Explanatory Statement which follows this letter.
9
7. SHARE OPTION PLANS
Optionholders should refer to the separate letter sent to them by the Company.
8. CONCLUSION
The Independent Directors, who have been so advised by KPMG Corporate Finance,
consider that the terms of the Proposal are fair and reasonable so far as the
Scheme Shareholders are concerned. In providing financial advice in relation to
the terms of the Scheme, KPMG Corporate Finance has taken into account the
Independent Directors' commercial assessments of the Proposal.
9. RECOMMENDATION
The Independent Directors unanimously recommend that Scheme Shareholders
approve the Scheme and vote in favour of the resolutions necessary to implement
it.
The Independent Directors intend to vote their own beneficial holdings to
approve the Scheme at the Court Meeting and in favour of the special resolution
to be proposed at the Extraordinary General Meeting.
The holders of the WMI Group Shares (which currently represent approximately 80
per cent. of the issued Ordinary Shares) have confirmed that they intend to
vote in favour of the special resolution to be proposed at the Extraordinary
General Meeting. Accordingly, should the holders of the WMI Group Shares so
vote, that resolution will be passed.
Yours faithfully,
Sir William Barlow
Chairman of the Independent Directors
10
PART 2
EXPLANATORY STATEMENT
LOGO (IN COMPLIANCE WITH SECTION 426 OF THE COMPANIES ACT 1985)
LOGO
MERRILL LYNCH INTERNATIONAL ROPEMAKER PLACE 25 ROPEMAKER STREET LONDON EC2Y
9LY
KPMG CORPORATE FINANCE
8 SALISBURY SQUARE LONDON EC4Y 8BB
. SEPTEMBER 1998
To Shareholders and, for information only, to ADR holders and Optionholders
Dear Shareholder,
RECOMMENDED PROPOSAL FOR THE COMPANY TO BECOME WHOLLY OWNED BY WMI
1. INTRODUCTION
As announced on 29 June 1998, it is proposed that the Company should become
wholly owned by WMI. The Proposal is to be effected by means of a Scheme of
Arrangement between the Company and Scheme Shareholders under section 425 of
the Act. At present, members of the WMI Group own in aggregate approximately
80 per cent. of the issued Ordinary Shares. The purpose of the Scheme is to
provide for the Company to become wholly owned by members of the WMI Group, to
be achieved by the cancellation of the Scheme Shares and for the reserve
arising from such cancellation to be applied in paying up in full new shares
in the Company with an aggregate nominal value equal to that of the cancelled
Scheme Shares and issuing such new shares to WMII or as it may direct.
In proposing the Scheme, the Independent Directors have been advised by KPMG
Corporate Finance and WMI has been advised by Merrill Lynch. We have been
authorised by the boards of the Company and WMI, respectively, to write to you
on their behalf to explain the Proposal and the provisions and effects of the
Scheme. KPMG Corporate Finance and Merrill Lynch are acting only for the
Company and WMI, respectively, in connection with the Proposal and neither
KPMG Corporate Finance nor Merrill Lynch will treat any other person receiving
or relying on this document as being, by virtue thereof, its client.
YOUR ATTENTION IS DRAWN TO THE LETTER FROM SIR WILLIAM BARLOW SET OUT IN PART
1 OF THIS DOCUMENT (WHICH FORMS PART OF THIS EXPLANATORY STATEMENT)
SUMMARISING THE PROPOSAL, EXPLAINING THE BACKGROUND TO AND REASONS FOR THE
PROPOSAL AND RECOMMENDING THAT SCHEME SHAREHOLDERS VOTE IN FAVOUR OF THE
SCHEME AT THE FORTHCOMING MEETINGS.
11
2.SUMMARY OF THE TERMS OF THE SCHEME
Basic Proposal
Under the Proposal, if the Scheme becomes effective, Scheme Shareholders will
receive:
FOR EACH SCHEME SHARE 345P IN CASH
The Proposal values the entire existing issued share capital of the Company at
approximately (Pounds)1,295 million and the existing Scheme Shares at
approximately (Pounds)260 million.
At the close of business on 26 June 1998 (the date before the announcement of
the Proposal), the middle market price on the London Stock Exchange of an
Ordinary Share was 247.5p.
Dollar Election
Scheme Shareholders may also elect to receive all (but not some only) of their
cash entitlement under the Scheme in US dollars on the following basis:
FOR EACH SCHEME SHARE THE US DOLLAR EQUIVALENT OF 345P CALCULATED
USING THE DOLLAR EXCHANGE RATE
Elections for the Dollar Election will be irrevocable once made.
A Dollar Election shall be valid in respect of all the Scheme Shares
registered as at 5.30 pm on the Record Date in the name of the Scheme
Shareholder who made the election. Accordingly, if a Scheme Shareholder who
has made a Dollar Election subsequently transfers some or all of his Scheme
Shares and the transfer is registered before that time, the transferee shall
receive payment in sterling in respect of such Scheme Shares unless such
transferee makes or has made a valid Dollar Election with respect thereto.
The aggregate US dollar amount due under the Scheme to a Scheme Shareholder
who has made a Dollar Election shall be rounded down to the nearest whole
cent.
3. COURT MEETING AND EXTRAORDINARY GENERAL MEETING
COURT MEETING
The Scheme requires approval by Scheme Shareholders at the Court Meeting and
the subsequent sanction of the Court.
You will find set out on page 79 of this document a notice of the Court
Meeting, which has been convened by order of the Court for the purpose of
considering and, if thought fit, approving the Scheme (with or without
modification). The Court Meeting will be held at the offices of Slaughter and
May, 4 Coleman Street, London EC2V 5DB, at 10.00 am on 7 October 1998.
At the Court Meeting, voting will be on a poll whereby Scheme Shareholders,
voting in person or by proxy, will be entitled to one vote for each Scheme
Share held. The resolution will be passed if a majority in number of the
Scheme Shareholders, present and voting either in person or by proxy,
representing 75 per cent. in value of the Scheme Shares voted, vote in favour
of the Scheme.
IN ORDER THAT THE COURT CAN BE SATISFIED THAT VOTES CAST CONSTITUTE A FAIR
REPRESENTATION OF THE VIEWS OF THE HOLDERS OF THE SCHEME SHARES, IT IS
IMPORTANT THAT AS MANY VOTES AS POSSIBLE ARE CAST AT THE COURT MEETING. YOU
ARE THEREFORE URGED TO COMPLETE AND RETURN AS SOON AS POSSIBLE, AND IN ANY
EVENT BY NOT LATER THAN 10.00 AM ON 5 OCTOBER 1998, THE PINK FORM OF PROXY IN
ACCORDANCE WITH THE INSTRUCTIONS PRINTED THEREON, WHETHER OR NOT YOU INTEND TO
ATTEND AND VOTE IN PERSON AT THE COURT MEETING. RETURNING THE FORM OF PROXY
WILL NOT PRECLUDE YOU FROM ATTENDING AND VOTING IN PERSON AT THE COURT MEETING
SHOULD YOU WISH TO DO SO. THE PINK FORM OF PROXY MAY ALSO BE HANDED TO THE
CHAIRMAN OF THE COURT MEETING AT THAT MEETING.
12
UPON THE SCHEME BECOMING EFFECTIVE, IT WILL BE BINDING ON ALL HOLDERS OF THE
SCHEME SHARES, IRRESPECTIVE OF WHETHER THEY ATTENDED OR VOTED AT THE COURT
MEETING.
Holders of the WMI Group Shares are not entitled to vote at the Court Meeting,
but will undertake to the Court to consent to the Scheme and to be bound by
its terms.
EXTRAORDINARY GENERAL MEETING
The Scheme involves the cancellation of the Scheme Shares by way of a
reduction of the share capital of the Company. Accordingly, the Scheme also
requires the approval of Ordinary Shareholders at the Extraordinary General
Meeting. You will find on pages 80 and 81 of this document a notice of the
Extraordinary General Meeting convened for the purpose of considering and, if
thought fit, passing a special resolution to give effect to the Scheme. The
special resolution also includes provisions amending the Articles of
Association of the Company to ensure that any Ordinary Shares issued to any
person before 5.30 pm on the business day immediately before the Hearing Date
shall be subject to the Scheme and any Ordinary Shares allotted or issued
after 5.30 pm on the business day immediately before the Hearing Date will not
be subject to the Scheme but will be transferred to WMII on the basis set out
in the notice of Extraordinary General Meeting. This latter provision will
ensure that the WMI Group owns or controls all the Ordinary Shares in the
Company if the Scheme becomes effective.
The Extraordinary General Meeting has been convened for 10.30 am (or as soon
thereafter as the preceding Court Meeting has been concluded or adjourned) on
7 October 1998 at the same location as the Court Meeting. At the Extraordinary
General Meeting it is necessary for the special resolution to be approved by a
majority of not less than 75 per cent. of votes cast. All Shareholders are
entitled to attend the Extraordinary General Meeting and vote on this
resolution and the holders of the WMI Group Shares (representing approximately
80 per cent. of the issued Ordinary Shares) have confirmed that they intend to
vote in favour of the resolution. Accordingly, should the holders of the WMI
Group Shares so vote, the special resolution will be passed. Voting will be on
a show of hands, unless a poll is demanded, in which case those present in
person or by proxy will be entitled to one vote for each Ordinary Share held.
YOU ARE URGED TO COMPLETE AND RETURN AS SOON AS POSSIBLE, AND IN ANY EVENT BY
10.30 AM ON 5 OCTOBER 1998, THE BLUE FORM OF PROXY IN ACCORDANCE WITH THE
INSTRUCTIONS PRINTED THEREON. RETURNING THE FORM OF PROXY WILL NOT PRECLUDE
YOU FROM ATTENDING OR VOTING IN PERSON AT THE EXTRAORDINARY GENERAL MEETING
SHOULD YOU WISH TO DO SO.
4. INFORMATION FOR HOLDERS OF ADRS
Holders of ADRs will not be entitled to attend the Court Meeting or the
Extraordinary General Meeting (although the Depositary will be so entitled and
will vote in accordance with instructions that may be received from holders of
ADRs). Holders of ADRs who wish to attend the Court Meeting or the
Extraordinary General Meeting should take steps to present their ADRs for
cancellation to the Depositary, so that they become registered holders of
Ordinary Shares prior to 5.30 pm on 5 October 1998, the day two days before
the Meetings. The Meetings will take place on 7 October 1998.
Holders of ADRs wishing to give voting instructions to the Depositary should
refer to the Transaction Statement for such information.
5. FINANCIAL EFFECTS OF THE SCHEME ON SCHEME SHAREHOLDERS
The following table shows, for illustrative purposes only and on the bases and
assumptions set out in the notes below, the financial effects of the Proposal
on capital value and income for a holder of 100 Scheme Shares if the Scheme
becomes effective.
13
(a)Capital value
Cash consideration (Pounds)345.00
Market value of 100 Ordinary Shares on 26 June 1998 (Pounds)247.50*
Increase in capital value 39%**
The Company has never paid a dividend to its shareholders. The future
income of the Scheme Shareholders, if the Scheme becomes effective, will
depend on how they reinvest the cash proceeds.
- --------
* The market value is based on the closing middle market quotation of 247.5p
per Ordinary Share as derived from the London Stock Exchange Daily Official
List for 26 June 1998, the last business day prior to the announcement of
the Proposal.
** No account has been taken of any liability to taxation.
6. CONDITIONS AND OPERATION OF THE SCHEME
Implementation of the Scheme is subject to, and conditional upon, inter alia:
(a) approval of the Scheme by a majority in number of the Scheme Shareholders,
present and voting either in person or by proxy, representing 75 per cent.
in value of the Scheme Shares voted, at the Court Meeting or at any
adjournment thereof;
(b) the special resolution set out on pages 80 to 81 of this document being
passed at the Extraordinary General Meeting or at any adjournment thereof;
and
(c) the Scheme being sanctioned by the Court, with or without modification as
provided for in the Scheme, and an office copy of the order of the Court
being delivered for registration to the Registrar of Companies in England
and Wales (and registered by him in relation to the reduction of capital)
not later than 31 December 1998, or such later date as the Company and
WMII may agree and the Court may allow.
Further details of the terms and conditions of the Scheme are set out in Part
5 of this document.
If the Scheme does not become effective on or before 31 December 1998, or such
later date as the Company and WMII may agree and the Court may allow, it will
lapse.
The purpose of the Scheme is to provide for the Company to become wholly owned
by members of the WMI Group, to be achieved by the cancellation of the Scheme
Shares and for the reserve arising from such cancellation to be applied in
paying up in full new shares in the Company with an aggregate nominal value
equal to that of the cancelled Scheme Shares and issuing such new shares to
WMII or as it may direct.
7. SETTLEMENT AND CANCELLATION OF LISTING
Subject to the Scheme becoming effective, settlement of the consideration to
which any Scheme Shareholder is entitled under the Scheme will be effected in
the following manner:
(a) Scheme Shares in certificated form
Cheques in respect of the cash receivable under the Scheme will be posted
to Scheme Shareholders who hold their Scheme Shares in certificated form
(i.e. not in CREST) by no later than 14 days after the Effective Date.
(b) Scheme Shares in uncertificated form (i.e. in CREST)
Subject to (c) below, where Scheme Shares are held in uncertificated form
(i.e. in CREST), the cash receivable under the Scheme will be paid to
Scheme Shareholders through CREST by no later than [14] days after the
Effective Date. However, WMII may (if, for any reason, it wishes to do so)
determine that all or part of such cash will be paid instead by cheque
despatched by post.
14
(c) Dollar Election
Cheques in respect of the US dollar amount receivable under the Scheme will
be posted to Scheme Shareholders who have made a Dollar Election by no
later than 14 days after the Effective Date.
(d) ADR Holders
ADR Holders should refer to the Transaction Statement for details of
settlement.
(e) General
All documents and remittances sent by or to Scheme Shareholders, or as such
persons shall direct, will be sent at their own risk and may be sent by
post.
Entitlements under the Scheme will be determined by reference to holdings
of Scheme Shares at 5.30 pm on the Record Date.
The London Stock Exchange will be requested to cancel the listing of
Ordinary Shares with effect from the close of business on the Effective
Date. Upon the Scheme becoming effective, certificates for Scheme Shares
will cease to be of value and should, if so requested by the Company, be
sent to the Company for cancellation. The Company proposes that the Record
Date will be the last date for dealings in Ordinary Shares on the London
Stock Exchange.
8. MANAGEMENT AND EMPLOYEES
Following implementation of the Proposal it is the intention of the
Independent Directors to resign from the Board of the Company. WMI has
confirmed that, following implementation of the Proposal, the existing rights,
including pension rights, of employees of the Company will be fully
safeguarded.
9. SHARE OPTION PLANS
Optionholders should refer to the separate letter sent to them by the Company.
10. TAXATION
Taxation information for United Kingdom and United States Shareholders or ADR
holders is summarised in Part 6 of this document. These summaries are intended
only as a general guide to current law and practice. ANYONE WHO IS IN ANY
DOUBT AS TO HIS TAX POSITION, OR WHO IS SUBJECT TO TAX IN ANY JURISDICTION
OTHER THAN THE UNITED KINGDOM OR THE UNITED STATES, SHOULD CONSULT AN
APPROPRIATE PROFESSIONAL ADVISER.
11. INFORMATION ON THE COMPANY
The Company, acting through the members of the Group, is a leading
international provider of waste management services and conducts substantially
all of the waste management operations of WMI located outside North America.
The Company provides a wide range of solid and hazardous waste management
services, including the collection, transportation, storage, treatment,
recycling and disposal of waste. It develops and operates water and wastewater
treatment facilities and it performs certain related environmental services.
Such services are integrated to varying degrees in different markets depending
on facilities, regulatory limitations, and the stage of market penetration.
The Company currently operates in 18 countries.
The Company's consolidated net sales and profit after tax and minority
interests for the year ended 31 December 1997 were (Pounds)1.1 billion and
(Pounds)21.3 million, respectively.
Further information relating to the Company is set out in Part 3 of this
document. In addition, the Transaction Statement contains certain additional
information including additional financial information about the Company, WMI
and Old WMI. Any projections included in such financial information are not
intended to constitute a profit forecast by the Company, its Directors or by
anyone else and Scheme Shareholders should not rely on any such projections in
making any decisions concerning the Scheme.
15
12. INFORMATION ON WMI AND OLD WMI
WMI, together with its subsidiaries including Old WMI, is a leading
international provider of waste management services. WMI is the largest waste
management services company in North America and has an extensive network of
landfills, collection operations and transfer stations throughout North
America.
Old WMI provides integrated solid waste management and hazardous waste
management services in North America through its subsidiaries. Outside of
North America, Old WMI provides comprehensive waste management and related
services, including solid and hazardous waste management services, through the
Company. Through Wheelabrator Technologies Inc., Old WMI is a leading
developer of facilities for, and provider of services to, the trash-to-energy
and waste-fuel powered independent power markets.
On 10 March 1998, Old WMI entered into a Merger Agreement with WMI (then known
as USA Waste Services, Inc.) which provided, subject to the satisfaction of
conditions contained therein, that a wholly owned subsidiary of WMI would be
merged with and into Old WMI. On 16 July 1998, the Merger was consummated.
Upon consummation of the Merger, Old WMI became a direct, wholly owned
subsidiary of WMI and changed its name to Waste Management Holdings, Inc.
Further information relating to WMI is set out in Part 4 of this document.
13. DIRECTORS' INTERESTS
The interests (for the purposes of Part X of the Act) of the Directors in the
Ordinary Shares are set out in paragraph 4 of Part 7 of this document. The
effect of the Scheme on the interests of the Directors does not differ from
its effect on the like interests of any other Scheme Shareholder. Certain of
the Directors have options granted under the Share Option Plans which will
become exercisable as a result of the Proposal.
14. ACTION TO BE TAKEN
You will find enclosed with this document:
- -- a pink form of proxy for use at the Court Meeting;
- --a blue form of proxy for use at the Extraordinary General Meeting; and
- --a green Dollar Election Form.
Whether or not you intend to be present at the Court Meeting or the
Extraordinary General Meeting, it is important that you complete, sign and
return the pink and blue forms of proxy as soon as possible, and in any event,
so as to arrive at the offices of Computershare Services PLC, PO Box 82,
Caxton House, Redcliffe Way, Bristol BS99 7YA, not later than 10.00 am and
10.30 am, respectively, on 5 October 1998. If the pink form of proxy is not so
lodged it may be handed to the Chairman of the Court Meeting at that meeting.
The completion and return of the forms of proxy will not prevent you from
attending either or both of the meetings and voting in person if you wish to
do so.
Scheme Shareholders wishing to elect for the Dollar Election in respect of
their Scheme Shares should also complete, sign and return the Dollar Election
Form so as to arrive at the offices of Computershare Services PLC, PO Box 82,
Caxton House, Redcliffe Way, Bristol BS99 7YA, not later than 5.30 pm on 2
November 1998.
Shareholders who wish to receive payment in sterling do not need to complete
the Dollar Election Form.
16
15. FURTHER INFORMATION
Your attention is also drawn to Parts 3 to 7 of this document which contain
additional information.
Yours faithfully
for KPMG Corporate Finance for and on behalf of Merrill Lynch International
Stephen Barrett Laurent Haziza
Partner Director,
Investment Banking
17
PART 3
INFORMATION ON THE COMPANY
1. INTERIM ANNOUNCEMENT OF THE GROUP FOR THE SIX MONTHS ENDED 30 JUNE 1998
The following is the full text of the announcement dated 22 July 1998 made by
the Company setting out the Group's interim results for the six months to 30
June 1998:
"London 22 July 1998 -- 3.00 pm
WASTE MANAGEMENT INTERNATIONAL PLC ANNOUNCES SECOND QUARTER RESULTS FOR 1998
. Turnover for the second quarter was (Pounds)227.2 million compared with
(Pounds)282.2 million in the same period in 1997
. Operating profits as a percentage of turnover were 10.1% compared with
13.3% in the second quarter of 1997
. Profits before tax were (Pounds)29.8 million compared with (Pounds)35.2
million for the same period in 1997
. Cash flow for the quarter was (Pounds)13.7 million
. Results include a non-operating gain of (Pounds)6.5 million before tax
. The Company and its South American partner to acquire 80% of Brazil's
leading solid waste company for US$88 million
. Earnings per share were 5.5p compared to 5.2p in 1997
FIRST SIX MONTHS
Turnover for the first six months was (Pounds)450.6 million compared to
(Pounds)560.1 million in the same period in 1997. Operating profits as a
percentage of turnover were 9.9% compared to 13.4% in 1997. Profits before
taxation, including non-operating gains totalling (Pounds)22.6 million, were
(Pounds)67.2 million compared with (Pounds)69.1 million in 1997. Earnings per
share for the first half were 8.5p compared with 9.7p in 1997.
CHIEF EXECUTIVE'S STATEMENT FROM BO GABRIELSON
In our first quarter announcement, we expressed our intention to increase
acquisition and project development activities in order to leverage the
Company's strong balance sheet. Since then, we have completed three tuck-in
acquisitions which will strengthen our operations in Australia, New Zealand
and Denmark, and we have agreed together with our South American partner to
acquire an 80% stake in Brazil's leading solid waste company. This acquisition
will serve as our platform for growth in the most dynamic economy in South
America.
Overall, we were satisfied with the performance of most of our operations
during the quarter, although the problems that have impacted our Italian
business persist. Difficult trading conditions and delays in permitting new
landfill capacity continue to impact our performance in Italy. We have
appointed a new country manager and are continuing our efforts to obtain
additional disposal space.
The reduction in turnover from the second quarter last year was largely due to
the termination of services in Buenos Aires, the 1997 sale of our businesses
in France and Spain and the sale in January 1998 of our German waste-to-energy
facility. Lower volumes in Italy and the effect of currency translations on
non-sterling revenues also contributed to the reduction in turnover. Cash flow
for the year to date was (Pounds)84.4 million.
18
On 30 June, the Company announced it had agreed the terms of a proposal to
become an indirect wholly owned subsidiary of its majority shareholder, Waste
Management, Inc. Under the proposal, holders of the approximately 20%
outstanding ordinary shares of Waste Management International not currently
owned by Waste Management subsidiaries will receive 345p in cash for each
ordinary share held. On the announcement date, the proposal valued each Waste
Management International ADR (each representing two Waste Management
International ordinary shares) at approximately $11.50. The US dollar value of
the proposal will fluctuate with the sterling-dollar exchange rate.
On 16 July, our US parent merged with USA Waste Services, Inc. The new
combined company is called Waste Management, Inc. Following completion of the
merger, the Company received notice from Wessex Water Plc, its UK joint
venture partner, that the merger constituted an "Event of Default" under the
joint venture agreement. As previously disclosed, the change in control of the
Company's former parent company may constitute an "Event of Default" under the
agreement, thereby giving Wessex the right to require the Company to sell its
51% interest in Wessex Waste Management for its fair value. Wessex's notice
does not indicate an intention to exercise this right and Wessex has publicly
stated that it has not decided whether to exercise such right. Neither the
consummation of the merger nor the exercise by Wessex of its "call" right
would affect the pending proposal to acquire the publicly-traded shares of
Waste Management International.
The Company and its South American partner, Sideco Americana, agreed to
acquire an 80% interest in Enterpa Ambiential SA (EASA), the largest solid
waste company in Brazil. Waste Management International will obtain a 32%
stake in EASA for a cost of US$35.2 million in cash and notes. Together, the
Company and Sideco have the right after three years to acquire the remaining
20% of EASA. This acquisition will provide us with the vehicle to take
advantage of Brazil's high rate of urbanisation and the country's rapid drive
towards privatisation of public services.
BO GABRIELSON, CHIEF EXECUTIVE -- 22 JULY 1998
Waste Management International plc is a leading provider of comprehensive
solid and hazardous waste management services, including collection,
transportation, storage, treatment, recycling, incineration, disposal, waste-
to-energy facilities and water and wastewater treatment.
The Company currently operates in eight European countries -- Austria,
Denmark, Finland, Germany, Italy, the Netherlands, Sweden, and the United
Kingdom -- as well as Argentina, Australia, Brazil, Brunei, China (including
the Hong Kong SAR), Indonesia, Israel, Malaysia, New Zealand and Thailand.
19
WASTE MANAGEMENT INTERNATIONAL PLC
GROUP PROFIT AND LOSS ACCOUNTS
(UNAUDITED)
For the three months ended For the six months ended
30 June 30 June
------------------------------- -----------------------------
1998 1997 1998 1997
------------- ------------- ------------ ------------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
------------- ------------- ------------ ------------
Turnover 227,224 282,193 450,603 560,114
------------- ------------- ------------ ------------
Operating expenses 176,405 213,287 349,480 422,411
Selling and administra-
tive expenses 27,913 31,332 56,627 62,851
------------- ------------- ------------ ------------
Operating profit 22,906 37,574 44,496 74,852
Interest income 1,064 2,136 2,040 5,808
Interest expense (1,975) (4,976) (4,112) (12,091)
Other income (expense),
net 7,811 458 24,768 530
------------- ------------- ------------ ------------
Profit on ordinary
activities before
taxation 29,806 35,192 67,192 69,099
Tax on profit on ordi-
nary activities 5,660 10,942 26,500 21,318
------------- ------------- ------------ ------------
Profit on ordinary ac-
tivities after taxation 24,146 24,250 40,692 47,781
Minority interests 3,674 4,910 8,703 11,519
------------- ------------- ------------ ------------
Retained profit for the
period attributable to
shareholders 20,472 19,340 31,989 36,262
============= ============= ============ ============
Average ordinary shares
outstanding 375,273 375,273 375,273 375,272
============= ============= ============ ============
Earnings per ordinary
share 5.5p 5.2p 8.5p 9.7p
============= ============= ============ ============
Net income and Earnings per Ordinary Share determined in accordance with
United States generally accepted accounting principles (US GAAP) are shown in
the following table:
1998 1997 1998 1997
------------- ------------- ------------ ------------
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
------------- ------------- ------------ ------------
Net income (retained
profit) as shown above 20,472 19,340 31,989 36,262
Sale of businesses -- -- 8,841 --
Amortisation of good-
will, net (4,305) (4,909) (8,650) (10,077)
------------- ------------- ------------ ------------
Net income in accordance
with US GAAP 16,167 14,431 32,180 26,185
============= ============= ============ ============
Net income per ordinary
share in accordance
with US GAAP 4.3p 3.8p 8.6p 7.0p
============= ============= ============ ============
20
WASTE MANAGEMENT INTERNATIONAL PLC
GROUP BALANCE SHEET
(UNAUDITED)
30 June 31 December
1998 1997
----------- -----------
(Pounds)000 (Pounds)000
----------- -----------
FIXED ASSETS
Tangible assets 601,953 653,851
Investments 6,920 6,349
-------- --------
608,873 660,200
-------- --------
CURRENT ASSETS
Debtors: amounts due within one year 266,167 279,955
Debtors: amounts due after one year 76,528 75,788
Prepayments, parts and supplies 24,879 24,978
Deferred costs: amounts to be released within one year 3,752 4,147
Deferred costs: amounts to be released after one year 26,029 21,093
Investments 738 5
Cash at bank and in hand 29,399 36,652
-------- --------
427,492 442,618
CREDITORS: amounts due within one year (342,247) (398,389)
-------- --------
NET CURRENT ASSETS 85,245 44,229
-------- --------
Total assets less current liabilities 694,118 704,429
CREDITORS: amounts due after one year (50,199) (136,313)
Provisions for liabilities and charges (113,378) (107,300)
-------- --------
NET ASSETS 530,541 460,816
======== ========
CAPITAL AND RESERVES
Called-up share capital 37,527 37,527
Other reserves 862,171 862,171
Foreign currency translation reserve 14,271 21,516
Profit and loss account 367,751 335,763
Goodwill reserve (860,989) (911,691)
-------- --------
Total equity shareholders' funds 420,731 345,286
MINORITY INTERESTS 109,810 115,530
-------- --------
TOTAL CAPITAL EMPLOYED 530,541 460,816
======== ========
21
WASTE MANAGEMENT INTERNATIONAL PLC
GROUP CASH FLOW STATEMENT
(UNAUDITED)
For the six months
ended
30 June
-----------------------
1998 1997
----------- -----------
(Pounds)000 (Pounds)000
----------- -----------
OPERATING ACTIVITIES
Operating profit 44,496 74,852
Depreciation charges 38,654 43,812
Loss on sale of tangible fixed assets 808 31
Decrease/(increase) in debtors and prepayments, parts
and supplies 2,749 (8,250)
Decrease/(increase) in deferred costs 140 (850)
Decrease in creditors and accruals (36,504) (17,763)
Decrease in provisions (1,076) (1,767)
-------- --------
NET CASH INFLOW FROM OPERATING ACTIVITIES 49,267 90,065
-------- --------
RETURNS ON INVESTMENT AND SERVICING OF FINANCE
Interest received 2,040 5,808
Interest paid (4,325) (12,091)
Dividends paid to minority interests (7,096) --
Other income 8,068 263
-------- --------
NET CASH OUTFLOW FROM RETURNS ON INVESTMENTS AND SER-
VICING OF FINANCE (1,313) (6,020)
-------- --------
TAX PAID (5,324) (2,471)
-------- --------
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
Purchase of tangible fixed assets (45,565) (37,385)
Sale/(purchase) of investments (373) (182,243)
Sale of tangible fixed assets 13,075 3,618
-------- --------
NET CASH FLOW/(OUTFLOW) FROM CAPITAL EXPENDITURE AND
FINANCIAL INVESTMENT (32,863) 148,476
-------- --------
ACQUISITIONS AND DISPOSALS
Purchase of subsidiary undertakings (725) (2,230)
Sale of subsidiary undertakings 81,455 31,779
Changes in minority interests (5,641) (7,092)
-------- --------
NET CASH INFLOW FROM ACQUISITIONS AND DISPOSALS 75,089 22,457
-------- --------
NET CASH INFLOW BEFORE MANAGEMENT OF LIQUID RESOURCES
AND FINANCING ACTIVITIES 84,856 252,507
MANAGEMENT OF LIQUID RESOURCES (413) --
-------- --------
NET CASH INFLOW BEFORE FINANCING ACTIVITIES 84,443 252,507
-------- --------
FINANCING ACTIVITIES
Exercise of share options -- 3
New loans 146,570 206,697
Changes in indebtedness with ultimate parent company 1,709 (93,629)
Repayments of loans (239,524) (351,256)
-------- --------
NET CASH OUTFLOW FROM FINANCING ACTIVITIES (91,245) (238,185)
-------- --------
INCREASE/(DECREASE) IN CASH AT BANK AND IN HAND (6,802) 14,322
======== ========
22
2. FINANCIAL INFORMATION ON THE GROUP FOR THE THREE YEARS ENDED 31 DECEMBER
1997
The financial information set out in this paragraph 2 of Part 3 of this
document has been extracted without material adjustment from the consolidated
financial statements of the Group for each of the three years ended 31
December 1997. The financial information does not constitute statutory
accounts of the Group within the meaning of Section 240 of the Act. Arthur
Andersen, chartered accountants and registered auditors, of 1 Surrey Street,
London, WC2R 2PS are the Group's auditors and have reported on the statutory
accounts of the Group for each of the three years ended 31 December 1997
within the meaning of section 235 of the Act. Each such report was unqualified
within the meaning of section 262(1) of the Act and did not contain a
statement under section 237(2) or (3) of the Act. Statutory accounts for the
years ended 31 December 1995, 1996 and 1997 have been delivered to the
Registrar of Companies in England and Wales pursuant to section 242 of the
Act.
In relation to notes 23 and 25, subsequent to the date of the consolidated
financial statements the Merger was consummated. As a result, WMI is now the
ultimate parent company of the Company. In relation to note 25, please also
refer to pages 70 to 71.
23
PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER
1997 1996 1995
Notes (Pounds)000 (Pounds)000 (Pounds)000
----- ----------- ----------- -----------
TURNOVER
Continuing operations 1,078,238 1,218,894 1,180,783
Acquisitions 9,358 -- --
----------- ----------- -----------
2 1,087,596 1,218,894 1,180,783
Operating expenses (826,947) (910,080) (866,477)
Exceptional charges 22 (65,456) (127,735) (123,160)
Selling and administrative
expenses (125,447) (143,673) (149,289)
----------- ----------- -----------
OPERATING PROFIT
Continuing operations 68,624 37,406 41,857
Acquisitions 1,122 -- --
----------- ----------- -----------
2 69,746 37,406 41,857
Other interest receivable 10,704 7,962 10,718
Other income, net 3 2,130 25,437 23,686
Interest payable 4 (18,890) (39,863) (53,136)
Write down of investment 10c -- (18,500) --
----------- ----------- -----------
PROFIT ON ORDINARY ACTIVITIES
BEFORE TAXATION 5 63,690 12,442 23,125
Tax on profit on ordinary
activities 7 (25,029) (59,979) (10,942)
----------- ----------- -----------
PROFIT/(LOSS) ON ORDINARY
ACTIVITIES AFTER TAXATION 38,661 (47,537) 12,183
Minority interests (17,363) (18,662) (15,642)
----------- ----------- -----------
RETAINED PROFIT/(LOSS) FOR THE
FINANCIAL YEAR 21,298 (66,199) (3,459)
=========== =========== ===========
EARNINGS/(LOSS) PER ORDINARY
SHARE 8 5.7p (17.6)p (0.9)p
=========== =========== ===========
Weighted average number of
ordinary shares in issue
during the year 375,273,000 375,213,000 375,121,000
=========== =========== ===========
A statement of movements on reserves and total equity shareholders' funds is
given in Note 18.
The accompanying notes are an integral part of the Profit and Loss Account.
24
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
FOR THE YEAR ENDED 31 DECEMBER
1997 1996 1995
(Pounds)000 (Pounds)000 (Pounds)000
----------- ----------- -----------
Retained profit/(loss) for the
financial year 21,298 (66,199) (3,459)
Effect of foreign exchange rate changes
on foreign currency net investments (26,060) (8,657) 1,327
------- ------- ------
TOTAL RECOGNISED GAINS AND LOSSES
RELATING TO THE YEAR (4,762) (74,856) (2,132)
======= ======= ======
25
BALANCE SHEET
31 DECEMBER
Group Company
----------------------- -----------------------
1997 1996 1997 1996
Notes (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
----- ----------- ----------- ----------- -----------
FIXED ASSETS
Tangible assets 9 653,851 766,819 -- --
Investments 10 6,349 10,442 677,009 857,652
-------- --------- ------- --------
660,200 777,261 677,009 857,652
-------- --------- ------- --------
CURRENT ASSETS
Debtors: amounts due
within one year 11 279,955 391,342 2,961 --
Debtors: amounts due af-
ter one year 11 75,788 86,589 102,766 108,286
Prepayments, parts and
supplies 24,978 28,952 435 497
Deferred costs: amounts
to be released within
one year 12 4,147 3,906 -- --
Deferred costs: amounts
to be released after
one year 12 21,093 31,216 -- --
Investments 13 5 183,283 -- --
Cash at bank and in hand 36,652 40,891 40 2,515
-------- --------- ------- --------
442,618 766,179 106,202 111,298
CREDITORS: Amounts due
within one year 14 (398,389) (529,071) (774) (33,072)
-------- --------- ------- --------
NET CURRENT ASSETS 44,229 237,108 105,428 78,226
-------- --------- ------- --------
TOTAL ASSETS LESS CUR-
RENT LIABILITIES 704,429 1,014,369 782,437 935,878
CREDITORS: Amounts due
after one year 15 (136,313) (453,358) -- (154,861)
PROVISIONS FOR LIABILI-
TIES AND CHARGES 16 (107,300) (125,935) 156 (1,123)
-------- --------- ------- --------
NET ASSETS 460,816 435,076 782,593 779,894
======== ========= ======= ========
CAPITAL AND RESERVES
Called-up equity and
share capital 17 37,527 37,527 37,527 37,527
Share premium account 18 394,199 394,196 394,199 394,196
Other reserves 18 467,972 467,972 325,880 326,162
Foreign currency trans-
lation reserve 18 21,516 47,576 -- --
Profit and loss account 18 335,763 314,465 24,987 22,009
Goodwill reserve 18 (911,691) (946,834) -- --
-------- --------- ------- --------
TOTAL EQUITY SHAREHOLD-
ERS' FUNDS 18 345,286 314,902 782,593 779,894
MINORITY INTERESTS 115,530 120,174 -- --
-------- --------- ------- --------
TOTAL CAPITAL EMPLOYED 460,816 435,076 782,593 779,894
======== ========= ======= ========
The accompanying notes are an integral part of these Balance Sheets.
26
CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER
1997 1996
Notes (Pounds)000 (Pounds)000
----- ----------- -----------
OPERATING ACTIVITIES
Operating profit 69,746 37,406
Depreciation and amortisation charges 87,379 97,351
Profit on sale of property and equipment (663) (480)
Exceptional charge 65,456 127,735
(Increase)/decrease in debtors and prepaid ex-
penses, parts and supplies 67,438 (24,354)
(Increase)/decrease in deferred costs (1,134) 6,047
Increase/(decrease) in creditors and accrued ex-
penses (25,213) 1,742
Decrease in deferred items (2,175) (24,776)
-------- --------
NET CASH INFLOW FROM OPERATING ACTIVITIES 260,834 220,671
-------- --------
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest received 10,704 7,962
Interest paid (22,827) (45,492)
Dividends paid to minority interests (17,819) (596)
Other income/(expense) 1,568 (316)
Dividends received 39 1,906
-------- --------
NET CASH OUTFLOW FROM RETURNS ON INVESTMENTS AND
SERVICING OF FINANCE (28,335) (36,536)
-------- --------
TAX PAID
United Kingdom corporation tax (5,630) (2,519)
Overseas tax (10,166) (16,764)
-------- --------
NET CASH OUTFLOW FROM TAXES PAID (15,796) (19,283)
-------- --------
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
Purchase of tangible fixed assets (87,755) (130,734)
Purchase of investments (2,190) (2,074)
Sale of tangible fixed assets 15,752 22,966
-------- --------
NET CASH OUTFLOW FROM CAPITAL EXPENDITURE AND
FINANCIAL INVESTMENT (74,193) (109,842)
-------- --------
ACQUISITIONS AND DISPOSALS
Purchase of subsidiary undertakings (net of cash
acquired) 19a (6,431) (9,049)
Sale of investments in affiliates 184,798 5,299
Sale of business (net of cash divested) 19b 71,686 --
Changes in minority interests (543) 4,595
-------- --------
NET CASH INFLOW FROM ACQUISITIONS AND DISPOSALS 249,510 845
-------- --------
NET CASH INFLOW BEFORE MANAGEMENT OF LIQUID RE-
SOURCES AND FINANCING 392,020 55,855
-------- --------
MANAGEMENT OF LIQUID RESOURCES 3,240 (3,144)
-------- --------
NET CASH INFLOW BEFORE FINANCING 395,260 52,711
-------- --------
FINANCING ACTIVITIES
Exercise of share options 3 283
New loans 277,055 347,983
Changes in indebtedness with ultimate parent
company (92,137) 9,805
Repayment of loans (582,564) (405,483)
-------- --------
NET CASH OUTFLOW FROM FINANCING ACTIVITIES (397,643) (47,412)
-------- --------
INCREASE/(DECREASE) IN CASH AT BANK AND IN HAND (2,383) 5,299
======== ========
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN
NET DEBT
Increase/(decrease) in cash (2,383) 5,299
Effect of foreign exchange rate changes (1,856) (2,409)
Change in liquid resources (3,240) 3,144
Change in debt 442,184 129,839
-------- --------
Change in net debt 434,705 135,873
Net debt at beginning of period (597,809) (733,682)
-------- --------
NET DEBT AT END OF PERIOD 19c (163,104) (597,809)
======== ========
The accompanying notes are an integral part of this Group Cash Flow Statement.
27
NOTES TO THE ACCOUNTS
NOTE 1 ACCOUNTING POLICIES
A summary of the principal accounting policies adopted in arriving at the
financial information set out in this report, all of which have been applied
consistently throughout the year and throughout the preceding years, is set
out below:
Basis of accounting
The accounts are prepared under the historical cost convention and in
accordance with the accounting standards applicable in the United Kingdom.
Basis of consolidation
Subsidiary undertakings acquired by the Group during the year are accounted
for using the acquisition method of accounting. Goodwill arising on
consolidation of those undertakings (representing the excess of the fair value
of the consideration given over the fair value of the separable net assets
acquired, having made appropriate provisions) is written off against reserves
on acquisition. The allocation of fair values in respect of the net assets of
subsidiary undertakings acquired is based on the best information available,
which may initially include estimates. As a result, subsequent adjustments to
fair values may be required.
In December 1997 the UK Accounting Standards Board (ASB) issued FRS 10
"Goodwill and Intangible Assets". This statement is effective for accounting
periods ending on or after 23 December 1998 although early adoption is
encouraged. FRS 10 will require newly purchased goodwill to be classified as
an amount on the balance sheet and amortised over its useful economic life.
Existing goodwill can either remain in equity, but be eliminated against
reserves until sold or otherwise impaired, or presented on the balance sheet
(net of amortisation attributable to prior years). The Group is currently
examining the most appropriate method for adoption of FRS 10.
In the Company's accounts, investments in subsidiary undertakings are stated
at cost less amounts written off. Dividends received and receivable are
credited to the Company's profit and loss account.
No profit and loss account is presented for the Company as provided by Section
230 of the Act. The Company's retained profit for the financial year
determined in accordance with the Act, was (Pounds)2,978,000 (1996--retained
loss (Pounds)1,815,000).
Tangible fixed assets
Tangible fixed assets are shown at original historical cost less accumulated
depreciation. Disposal sites are carried at historical cost and, to the extent
this exceeds estimated end of use realisable value, such excess is depreciated
over the estimated life of the disposal site. Site preparation and permit
costs are capitalised and charged to operations over the estimated useful life
of the site or term of the permit; operating costs are expensed as incurred.
Preparation costs for individual secure land disposal cells are capitalised
and amortised as the airspace is filled.
Depreciation is provided at rates calculated to write off the cost, less
estimated residual value, of each asset on a straight line basis over its
expected useful life as follows:
Land improvements and
disposal sites Economic life not exceeding 40 years
Buildings 10-40 years
Heavy collection
vehicles 8-10 years
Leasehold improvements Lesser of term of lease or economic life not exceeding 40 years
Machinery, equipment,
and containers 2-20 years
Profits or losses on the disposal of fixed assets are included in the
calculation of operating expenses.
28
Investments
Except as stated below, fixed asset investments are shown at cost less
provision for permanent diminution in value. Current asset investments are
stated at the lower of cost and net realisable value.
Interests in associated undertakings
Associated undertakings are entities in which a consolidated member of the
Group has a participating interest or over whose operating and financial
policy it exercises a significant influence. These investments are dealt with
by the equity method of accounting. That is, the Group profit and loss account
includes the appropriate share of these companies' profits less losses and the
Group's share of post-acquisition retained profits and changes in reserves is
added to the fair value of the investment in the Group balance sheet.
Any difference between the aggregate of the fair value of the net assets
acquired and the fair value of the consideration given is taken directly to
reserves.
Long-term contracts
Profit on long-term engineering, construction and operating contracts is taken
as the work is carried out if the final outcome can be assessed with
reasonable certainty. The profit included is calculated to reflect the
proportion of the work carried out at the year end, by recording turnover and
related costs as contract activity progresses. Turnover is calculated as that
proportion of total contract value which costs incurred to date bear to total
expected costs for that contract. Full provision is made for losses on
contracts in the year in which they are first foreseen.
Deferred costs
Expenditure incurred on specific projects is carried forward when its
recoverability can be foreseen with reasonable assurance, and amortised in
relation to the turnover from such projects. The directors consider this
treatment results in a proper matching of costs and turnover.
Taxation
Corporate taxes payable are provided on taxable profits at the current rate.
Deferred taxation has been calculated on the liability method. Deferred
taxation is provided on timing differences which will probably reverse, at the
rates of tax likely to be in force at the time of reversal. Deferred taxation
is not provided on timing differences which, in the opinion of the directors,
will probably not reverse.
Foreign currencies
For the purpose of consolidation, the results of overseas subsidiary
undertakings are translated into pounds sterling using the net investment
method under which translation gains or losses are shown as a movement on
reserves. Profit and loss accounts of overseas subsidiary undertakings are
translated at the average exchange rate and the difference in relation to year
end rates is taken directly to reserves. For subsidiary undertakings operating
in countries where hyper-inflation exists the temporal method is used, under
which all foreign exchange gains and losses are dealt with in the Group profit
and loss account.
Turnover
Turnover, which excludes turnover taxes, represents sales of services to third
parties in the normal course of business, and is recognised as services are
performed.
Leases
Rentals on operating leases are charged on a straight-line basis over the
lease term, even if the payments are not made on such a basis. Further
information on charges in the year and future commitments is given in Notes 5
and 20c.
29
Environmental liabilities
The Group provides for closure and post-closure monitoring costs over the
operating life of disposal sites as air space is consumed. These costs include
such items as the final cap and cover on the site, methane gas and leachate
management, and groundwater monitoring. The Group has also established
procedures to evaluate potential environmental remediation liabilities at
sites which it owns or operated, including sites acquired in business
combinations. Where the Group concludes that it is probable that a liability
has been incurred, provision is made in the financial statements for the
Group's best estimate of the liability. Such estimates are subsequently
revised as deemed necessary as additional information becomes available.
Pursuant to the Intercorporate Services Agreement ("ISA"), Old WMI agreed to
pay the Company $285,000,000 with respect to certain environmental costs
associated with sites and facilities owned, leased, operated or used by the
Group on or prior to 31 December 1991.
Pensions
The Group operates defined benefit pension schemes which require contributions
to be made to separately administered funds. Contributions to these funds are
charged to the profit and loss account so as to spread the cost of pensions
over the employees' working lives with the Group. The regular cost is
attributed to individual years using the projected unit credit method.
Variations in pension cost, which are identified as a result of actuarial
valuations, are amortised over the average expected remaining working lives of
employees in proportion to their expected payroll costs. Differences between
the amounts funded and the amounts charged to the profit and loss account are
treated as either provisions or prepayments in the Group balance sheet. In
addition, the Group also operates defined contribution pension schemes.
Further information on pension arrangements is given in Note 20d.
Reclassifications
Certain amounts in previously issued financial statements have been
reclassified to conform to 1997 classifications.
NOTE 2 SEGMENT INFORMATION
Substantially all of the operations of the Group are concerned with its
principal activity of providing waste management and related services outside
North America.
Contributions to Group turnover, operating profit and net assets by
geographical area are as follows:
1997 1996 1995
(Pounds)000 (Pounds)000 (Pounds)000
----------- ----------- -----------
TURNOVER
Italy 270,396 298,769 273,295
Rest of Europe 577,644 671,450 686,873
Asia, Pacific 180,700 176,313 151,746
Other 58,856 72,362 68,869
--------- --------- ---------
1,087,596 1,218,894 1,180,783
========= ========= =========
OPERATING PROFIT/(LOSS)
Italy (8,638) 23,795 (235)
Rest of Europe 43,315 (26,315) 26,483
Asia, Pacific 34,375 30,231 17,970
Other 694 9,695 (2,361)
--------- --------- ---------
69,746 37,406 41,857
========= ========= =========
30
The total figures for operations in 1997 included the following amounts
relating to acquisitions: operating expenses of (Pounds)6.3 million (1996 -
(Pounds)8.7 million) and selling and administrative expenses of (Pounds)1.9
million (1996 - (Pounds)1.0 million). Operating profits were reduced by the
exceptional charges discussed in Note 22.
1997 1996 1995
(Pounds)000 (Pounds)000 (Pounds)000
----------- ----------- -----------
ANALYSIS OF NET ASSETS
Italy 127,739 154,301 165,181
Rest of Europe 309,525 406,111 441,068
Asia, Pacific 179,764 233,981 246,658
Other 14,601 40,457 28,847
-------- -------- --------
631,629 834,850 881,754
Unallocated items, principally debt (170,813) (399,774) (506,599)
-------- -------- --------
460,816 435,076 375,155
======== ======== ========
The Group has operations in Hong Kong. The Hong Kong economy has been impacted
by the economic uncertainty associated with many of the countries in the
region. High and volatile interest rates have been associated with speculation
regarding the future of the currency. In addition to Hong Kong, the Group does
business in Indonesia and Thailand. These countries have experienced
illiquidity, volatile currency exchange and interest rates and reduced
economic activity. The Group will be affected for the foreseeable future by
the economic conditions in this region although it is not possible to
determine the extent of such impact. At 31 December 1997, the Group had a net
investment of (Pounds)65.1 million in these countries (including Hong Kong).
Pre-tax income from Indonesia and Thailand has not been significant to date.
In 1997 the pre-tax income generated from the Hong Kong operations was
(Pounds)15,645,000, after minority interests.
Late in 1997 the Group learnt that its bid to renew its city cleaning contract
in Buenos Aires, Argentina had been unsuccessful, and the Group's contract
would terminate on 31 January 1998. In 1997 operations in Argentina generated
approximately (Pounds)58,856,000 in turnover, and pre-tax income after
minority interest but before the exceptional charge of (Pounds)9,527,000.
The segment information presented in this note includes the Group's Hamm,
Germany facility which was sold in January 1998 (see Note 20).
NOTE 3 OTHER INCOME, NET
1997 1996 1995
(Pounds)000 (Pounds)000 (Pounds)000
----------- ----------- -----------
Income from interests in associated under-
takings 457 25,753 24,879
Other income/(expense) 1,673 (316) (1,193)
----- ------ ------
2,130 25,437 23,686
===== ====== ======
The Group's interests in associated undertakings are described in Note 10c.
NOTE 4 INTEREST PAYABLE
1997 1996 1995
(Pounds)000 (Pounds)000 (Pounds)000
----------- ----------- -----------
On bank loans, overdrafts and other loans
- --repayable within five years, by instal-
ments 3,358 5,117 6,645
- --repayable within five years, not by in-
stalments 18,404 33,175 50,781
On other loans 286 829 1,209
On advances from ultimate parent company 779 6,371 1,244
Interest capitalised (3,937) (5,629) (6,743)
------ ------ ------
18,890 39,863 53,136
====== ====== ======
Interest has been capitalised on significant land disposal cells and projects
under development.
31
NOTE 5 PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION
1997 1996 1995
(Pounds)000 (Pounds)000 (Pounds)000
----------- ----------- -----------
Profit on ordinary activities before taxa-
tion is stated after charging:
Depreciation of tangible fixed assets 87,379 97,351 88,397
Hire of vehicles and equipment under oper-
ating leases 7,131 8,934 9,038
Other operating leases rentals 12,547 12,756 12,754
Auditors' remuneration in respect of audit
services 1,201 1,317 1,351
Staff costs (see Note 6) 324,473 397,412 398,344
Non-audit fees paid to Arthur Andersen in the UK relating to 1997 amounting to
(Pounds)143,000 (1996--(Pounds)103,000; 1995--(Pounds)156,000) were charged to
the profit and loss account.
NOTE 6 STAFF COSTS
1997 1996 1995
Number Number Number
employed employed employed
----------- ----------- -----------
The average weekly number of persons
employed by the Group during the year
was as follows:
Operations 13,494 15,428 16,098
Administration 2,046 2,094 2,234
------- ------- -------
15,540 17,522 18,332
======= ======= =======
1997 1996 1995
(Pounds)000 (Pounds)000 (Pounds)000
----------- ----------- -----------
Employee costs (including executive
directors) during the year
amounted to:
Wages and salaries 256,609 315,901 317,912
Social Security costs 61,652 75,284 74,484
Other pension costs (see Note 20d) 6,212 6,227 5,948
------- ------- -------
324,473 397,412 398,344
======= ======= =======
Directors' remuneration:
Fees as directors 139 150 150
Other emoluments (including accrued
pension contributions) 1,187 1,144 674
------- ------- -------
Total remuneration 1,326 1,294 824
======= ======= =======
The directors' remuneration shown
above (excluding accrued pension
contributions) included:
Highest paid director 398 570 164
======= ======= =======
NOTE 7 TAX ON PROFIT ON ORDINARY ACTIVITIES
1997 1996 1995
(Pounds)000 (Pounds)000 (Pounds)000
----------- ----------- -----------
The tax charge is based on the profit
for the year and comprises:
Current taxation 26,475 18,466 24,003
Deferred taxation (1,446) 41,513 (13,061)
------- ------- -------
United Kingdom corporation tax at
31.5% was (Pounds)6,118,000 (1996--
(Pounds)27,840,000; 1995--
(Pounds)4,647,000) 25,029 59,979 10,942
======= ======= =======
32
NOTE 8 EARNINGS PER ORDINARY SHARE
The calculation of basic earnings per ordinary share is based on the profit on
ordinary activities after taxation and minority interests of the Group and the
weighted average number of ordinary shares in issue during the year. The
exercise of outstanding share options would not result in a material dilution
of earnings per ordinary share.
NOTE 9 TANGIBLE FIXED ASSETS
The Group's movement during 1997 comprises:
Land and buildings
----------------------------------------
Land, Leasehold Vehicles
primarily improve- and
disposal sites Buildings ments equipment Total
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
-------------- ----------- ----------- ----------- -----------
COST
Beginning of the year 266,118 142,481 15,914 716,378 1,140,891
Additions 19,102 4,430 1,768 66,392 91,692
Subsidiary undertakings
acquired 5 563 -- 3,453 4,021
Disposals (20,734) (9,683) (2,812) (59,411) (92,640)
Other 4,981 5,132 27 (10,140) --
Exchange adjustment (19,565) (13,468) (948) (64,791) (98,772)
------- ------- ------ ------- ---------
End of the year 249,907 129,455 13,949 651,881 1,045,192
------- ------- ------ ------- ---------
DEPRECIATION
Beginning of the year 74,113 30,054 7,733 262,172 374,072
Charge 18,816 5,946 1,326 61,291 87,379
Disposals (8,391) (1,807) (738) (23,853) (34,789)
Other 161 (228) (141) 208 --
Exchange adjustment (6,265) (3,114) (434) (25,508) (35,321)
------- ------- ------ ------- ---------
End of the year 78,434 30,851 7,746 274,310 391,341
------- ------- ------ ------- ---------
NET BOOK VALUE
Beginning of the year 192,005 112,427 8,181 454,206 766,819
======= ======= ====== ======= =========
End of the year 171,473 98,604 6,203 377,571 653,851
======= ======= ====== ======= =========
NOTE 10 FIXED ASSET INVESTMENTS
Group Company
----------------------- -----------------------
1997 1996 1997 1996
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
----------- ----------- ----------- -----------
Investment in subsidiary
undertakings, at cost -- -- 556,149 556,149
Investment in associated
undertakings 4,729 6,568 -- --
Other investments and loans 1,620 3,874 120,860 301,503
----- ------ ------- -------
6,349 10,442 677,009 857,652
===== ====== ======= =======
33
a) Principal Group investments
The Company and the Group have investments in the following subsidiary
undertakings all of which principally affected the profits or net assets of the
Group. Details concerning investments which are not significant have been
omitted from the list set out below in order to avoid a statement of excessive
length.
Country of
incorporation Percentage of ordinary
or shares held by the
registration ------------------------
and operation Principal activity Group Company
------------- -------------------------- ------------ -----------
PRINCIPAL SUBSIDIARY UN-
DERTAKINGS:
Afvalstoffen Terminal Netherlands Waste Collection/Treatment 100 --
Moerdijk B.V.
Enviropace Limited Hong Kong Waste Management 70 --
Green Valley Landfill Hong Kong Disposal 50 plus --
Limited 1 share
ICOVA B.V. Netherlands Waste Collection 100 --
IGM S.p.A. Italy Waste Collection/Disposal 100 --
Manliba S.A. (see Note Argentina Waste Collection 55 --
2)
Pacific Waste Management Australia Waste Collection/Disposal 100 --
Pty Limited
SACAGICA Srl Italy Waste Collection/Disposal 100 --
Schreiber Germany Waste Collection/Disposal 100 --
Stadtereinigung GmbH &
Co. KG
Waste Management GmbH & Germany Waste-to-Energy 100 --
Co. MVA Hamm OHG (see
Note 20a)
Waste Management Inter- Netherlands Holding Company -- 62.5
national B.V.
Waste Management New New Zealand Waste Collection/Disposal 61 --
Zealand Limited
Wessex Waste Management England Waste Collection/ 50 plus --
Limited Treatment/Disposal 1 share
Waste Management Inter- Sweden Waste Collection/ 100 --
national Sellbergs AB Treatment/Disposal
Voting rights in subsidiary undertakings do not differ from the percentage of
ordinary shares held.
34
b) Investment in subsidiary undertakings of the Group
The Group made 13 acquisitions during 1997, none of which was individually
material to the Group, for a cash consideration of (Pounds)7,737,000, which
together gave rise to goodwill of (Pounds)1,757,000. Fair values attributable
to the net assets of all subsidiary undertakings acquired in the year are
shown in the following table:
Fair
Acquisition value to
Book value adjustments the Group
(Pounds)000 (Pounds)000 (Pounds)000
----------- ----------- -----------
FIXED ASSETS
Tangible 3,983 38 4,021
CURRENT ASSETS
Debtors 4,563 -- 4,563
Cash 1,306 -- 1,306
Other 3,414 (1,689) 1,725
------ ------ ------
TOTAL ASSETS 13,266 (1,651) 11,615
------ ------ ------
LIABILITIES
Bank loans (299) -- (299)
Other creditors (5,589) (366) (5,955)
Provisions 144 475 619
------ ------ ------
Total liabilities (5,744) 109 (5,635)
------ ------ ------
NET ASSETS 7,522 (1,542) 5,980
====== ====== ======
Consideration 7,737
Net assets (5,980)
------
Goodwill arising 1,757
Goodwill adjustments in respect of prior
year acquisitions 3,975
------
TOTAL GOODWILL ARISING 5,732
======
The above acquisition adjustments, none of which were individually material,
provide for environmental monitoring and other restoration costs and bring
accounting policies into line with those of the Group.
c) Investment in associated undertakings of the Group
The movement in the year comprises:
Share of tangible
net assets
--------------------------
1997 1996
(Pounds)000 (Pounds)000
------------- -----------
Beginning of the year 6,568 170,437
Additions 1,314 1,760
Share of retained profit 457 22,437
Dividends received (39) (1,906)
Disposals and transfers (3,298) (5,299)
Reclassified to current investments (see Note 13) -- (180,037)
Exchange adjustment (273) (824)
-------- --------
End of the year 4,729 6,568
======== ========
35
During the first quarter of 1997, the Group sold to Wessex its B and C
shareholdings and a portion of its ordinary shares in Wessex. This sale,
together with the sale of the remaining ordinary shares in Wessex through on-
market transactions resulted in a loss which was accrued in the Group's 1996
financial statements of (Pounds)18,500,000 before income taxes, and
(Pounds)19,030,000 in income tax expense, resulting in a net loss of
(Pounds)37,530,000. Cash proceeds were approximately (Pounds)181,100,000. The
Group's share of net income from Wessex, which was recorded on the equity
method of accounting, was (Pounds)nil in 1997 (1996--(Pounds)21,805,000).
d) Other investments and loans
Group Company
----------- -----------
Loans to
subsidiary
Other under
investments takings
(Pounds)000 (Pounds)000
----------- -----------
COST:
The movement in the year comprises:
Beginning of the year 3,874 301,503
Additions 212 --
Disposals, transfers and repayments (2,215) (180,518)
Exchange adjustment (251) (2,105)
-------- --------
End of the year 1,620 118,880
======== ========
The cost of investments held by the Group and listed overseas included in the
above was (Pounds)70,000 (1996--(Pounds)98,000). See Note 21 for discussion of
market value. The remainder were unlisted. The Company had no listed
investments.
NOTE 11 DEBTORS
Group Company
----------------------- -----------------------
1997 1996 1997 1996
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
----------- ----------- ----------- -----------
AMOUNTS FALLING DUE WITHIN ONE
YEAR:
Trade debtors 222,700 300,308 -- --
Amounts recoverable on con-
tracts 9,426 49,570 -- --
Other debtors 47,829 41,464 2,961 --
------- ------- ------- -------
279,955 391,342 2,961 --
======= ======= ======= =======
AMOUNTS FALLING DUE AFTER ONE
YEAR:
Notes receivable 4,056 12,061 -- --
Amounts recoverable on con-
tracts 56,992 62,854 -- --
Amounts owed by ultimate par-
ent company -- -- 102,766 108,286
Other debtors 14,740 11,674 -- --
------- ------- ------- -------
75,788 86,589 102,766 108,286
======= ======= ======= =======
Amounts owed to the Company by the ultimate parent company comprise primarily
the benefit of the environmental covenant (see Note 16b).
Group
-----------------------
1997 1996
(Pounds)000 (Pounds)000
----------- -----------
Costs and estimated earnings on uncompleted contracts 293,400 254,268
Less: Billings on uncompleted contracts (226,982) (141,844)
-------- --------
Amounts recoverable on contracts 66,418 112,424
======== ========
36
The amounts recoverable on contracts are expected to be billed and collected
within five years. There is no significant retention. Amounts recoverable on
contracts primarily represent unbilled turnover on long-term contracts to
design, build and operate a hazardous waste treatment facility, a solid waste
landfill and a transfer station, all in Hong Kong.
NOTE 12 DEFERRED COSTS
Group Company
----------------------- -----------------------
1997 1996 1997 1996
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
----------- ----------- ----------- -----------
Project development costs 17,212 27,080 -- --
Contract procurement costs 4,814 5,177 -- --
Other 3,214 2,865 -- --
------ ------ ----- -----
After one year 25,240 35,122 -- --
====== ====== ===== =====
AMOUNTS TO BE RELEASED: 4,147 3,906 -- --
Within one year 21,093 31,216 -- --
------ ------ ----- -----
After one year 25,240 35,122 -- --
====== ====== ===== =====
NOTE 13 CURRENT ASSET INVESTMENTS
Group
-----------------------
1997 1996
(Pounds)000 (Pounds)000
----------- -----------
Listed investments
- --Wessex shareholding (see Note 10c) -- 180,037
- --Overseas 4 5
Term deposits 1 3,241
------ -------
5 183,283
====== =======
The aggregate market value or contracted sale value of listed investments is
not materially different from the carrying value.
NOTE 14 CREDITORS: AMOUNTS DUE WITHIN ONE YEAR
Group Company
----------------------- -----------------------
1997 1996 1997 1996
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
----------- ----------- ----------- -----------
Current maturities of long-
term debt 63,444 188,583 -- 30,066
Trade creditors 107,733 136,375 -- --
Other creditors 17,880 26,506 -- --
Accruals and deferred income 204,791 169,227 774 3,006
current portion of acquisition
provisions 4,541 8,380 -- --
------- ------- ------ -------
398,389 529,071 774 33,072
======= ======= ====== =======
37
NOTE 15 CREDITORS: AMOUNTS DUE AFTER ONE YEAR
Group Company
------------------------ -----------------------
1997 1996 1997 1996
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
----------- ----------- ----------- -----------
Debt (see below),
substantially all
comprising bank borrowings 135,645 362,982 -- 65,798
Amounts due to ultimate
parent company 668 90,376 -- 89,063
------- -------- ----- -------
136,313 453,358 -- 154,861
======= ======== ===== =======
Debt:
3.4625--4.15% unsecured
revolving credit facility 125,692 301,300 -- 65,798
10.5% unsecured revolving
credit facilities in Hong
Kong Dollars 4,300 37,746 -- --
6.025% unsecured loan in
Pounds Sterling, not
repayable by instalments -- 25,000 -- 25,000
Other 69,097 187,519 -- 5,066
------- -------- ----- -------
199,089 551,565 -- 95,864
Less current maturities (63,444) (188,583) -- (30,066)
------- -------- ----- -------
135,645 362,982 -- 65,798
======= ======== ===== =======
The amount of instalments falling due after five years at 31 December 1997 is
(Pounds)245,000 (1996--(Pounds)2,772,000).
Debt is repayable as follows:
Second year 7,510 22,784 -- --
Third year 126,706 30,140 -- --
Fourth year 1,051 303,378 -- 65,798
Fifth year 133 3,908 -- --
------- ------- ----- ------
135,400 360,210 -- 65,798
Sixth year and thereafter 245 2,772 -- --
------- ------- ----- ------
135,645 362,982 -- 65,798
======= ======= ===== ======
During 1995, the Company borrowed $150,000,000, due wholly on 29 September 2000
at a 6.6 per cent. interest rate, from Old WMI under the terms of the ISA. This
loan was repaid from the proceeds of the Wessex sale in February 1997 (see Note
10c).
During 1995, the Company entered into a (Pounds)400,000,000 unsecured
revolving credit facility (the "Facility"), replacing a similar facility, of
which (Pounds)125,692,000 is utilised at 31 December 1997 (1996--
(Pounds)301,300,000). The Facility expires on 20 December 2000. None of the
debt outstanding at 31 December 1997 or 31 December 1996 was guaranteed by Old
WMI under the provisions of the ISA. During 1997 the commitment was reduced to
(Pounds)220,000,000.
38
NOTE 16 PROVISIONS FOR LIABILITIES AND CHARGES
Group Company
------------------------ ------------------------
1997 1996 1997 1996
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
----------- ----------- ----------- -----------
Deferred taxation 12,124 (17) (156) 1,123
Other provisions 95,176 125,952 -- --
------- ------- ------ ------
107,300 125,935 (156) 1,123
======= ======= ====== ======
a) Deferred taxation
Provisions not deductible
until expenditure
incurred
- --effect of acquisition
provisions (53,958) (48,112) -- --
Net operating loss carry-
forwards (54,330) (65,436) -- (5,077)
Excess of book value over
taxation value of fixed
assets 63,474 78,177 -- --
Other timing differences
- --other assets (29,733) (23,400) (156) (172)
- --other liabilities 86,671 58,754 -- 6,372
------- ------- ------ ------
12,124 (17) (156) 1,123
======= ======= ====== ======
The movement on deferred
taxation comprises:
Beginning of the year (17) (41,558) 1,123 1,954
Charged/(credited) to
profit and loss account
--fixed asset timing
differences (14,703) (5,936) -- --
--net operating loss
carry-forwards 11,106 9,526 5,077 (37)
--other timing
differences 2,151 37,923 (6,356) (794)
Eliminated on disposal
of subsidiaries in the
year 15,177 -- -- --
Arising on acquisition
provisions made in the
year (699) (429) -- --
Exchange adjustment (891) 457 -- --
------- ------- ------ ------
End of year 12,124 (17) (156) 1,123
======= ======= ====== ======
Deferred taxation has been calculated on the liability method. Deferred
taxation is provided on timing differences which will probably reverse, at the
rates of tax likely to be in force at the time of reversal. Deferred taxation
is not provided on those timing differences which, in the opinion of the
directors, will probably not reverse.
The retained earnings of certain foreign subsidiary undertakings would be
subject to additional taxation if distributed. In the opinion of the
directors, these retained earnings are required to finance the continuing
operation of these subsidiary undertakings and, accordingly, no provisions for
additional taxation has been made.
b) Other provisions
Group
------------------------
1997 1996
(Pounds)000 (Pounds)000
----------- -----------
The movement on other provisions comprises:
Beginning of the year 125,952 159,967
Provisions associated with acquisitions 337 994
Other operating provisions 11,239 22,021
Provisions associated with divestitures (17,581) --
Amounts utilised (14,265) (29,463)
Transfer to short-term creditors (1,297) (16,459)
Exchange adjustment (9,209) (11,108)
------- -------
End of the year 95,176 125,952
======= =======
39
Under the terms of the ISA, Old WMI agreed to pay to the Company, over a
maximum period of 50 years, $285,000,000 as a capital contribution in respect
of certain uninsured and non-capitalised environmental costs and liabilities
including remediation or correction costs and costs of preventative action,
but generally excluding the proportion of such environmental costs and
liabilities attributable to any relevant minority interest. The costs and
liabilities are only those associated with sites and facilities owned, leased,
operated or used by the Group, or to which it transported any material or
substance, on or prior to 31 December 1991, regardless of whether such
liabilities arose before or arise during the term of the covenant. A provision
of that amount was accordingly assumed by Old WMI, the benefit of which was
reflected as an increase in the Group reserves in 1991. Old WMI paid
$9,480,000 for 1997 (1996--$23,667,000) in respect of this provision.
NOTE 17 CALLED-UP EQUITY SHARE CAPITAL
1997 1996
(Pounds)000 (Pounds)000
----------- -----------
AUTHORISED
1,000,000,000 ordinary shares of 10 pence each 100,000 100,000
======= =======
ALLOTTED, CALLED-UP AND FULLY PAID
375,273,456 ordinary shares of 10 pence each (1996--
375,272,288 ordinary shares) 37,527 37,527
======= =======
SHARE OPTIONS
At 31 December 1997, options were outstanding over 10,390,977 shares at
exercise prices ranging from 234.0 pence to 627.8 pence per share.
During the year to 31 December 1997 options covering 1,168 ordinary shares
were exercised at a price of 261.8 pence per share.
40
NOTE 18 CAPITAL AND RESERVES
Foreign Total
Share currency Profit equity
Called-up premium Other translation and loss Goodwill shareholders'
share capital account reserves reserve account reserve funds
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
------------- ----------- ----------- ----------- ----------- ----------- -------------
GROUP
At 1 January 1996 37,516 393,924 467,972 56,233 380,664 (1,064,475) 271,834
Exercise of share
options 11 272 -- -- -- -- 283
Foreign currency
translation -- -- -- (8,657) -- -- (8,657)
Retained loss for the
year -- -- -- -- (66,199) -- (66,199)
Goodwill written off -- -- -- -- -- (1,519) (1,519)
Exceptional charge -- -- -- -- -- 109,751 109,751
Writedown of investment -- -- -- -- -- 9,409 9,409
------ ------- ------- ------- ------- ---------- -------
At 31 December 1996 37,527 394,196 467,972 47,576 314,465 (946,834) 314,902
Exercise of share
options -- 3 -- -- -- -- 3
Foreign currency
translation -- -- -- (26,060) -- -- (26,060)
Retained profit for the
year -- -- -- -- 21,298 -- 21,298
Goodwill written off -- -- -- -- -- (5,732) (5,732)
Sale of businesses -- -- -- -- -- 36,828 36,828
Exceptional charge -- -- -- -- -- 4,047 4,047
------ ------- ------- ------- ------- ---------- -------
At 31 December 1997 37,527 394,199 467,972 21,516 335,763 (911,691) 345,286
====== ======= ======= ======= ======= ========== =======
Share Profit
Called-up premium Other and loss
share account reserves account Total
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
----------- ----------- ----------- ----------- -----------
COMPANY
At 1 January 1996 37,516 393,924 336,119 23,824 791,383
Exercise of share
options 11 272 -- -- 283
Exchange adjustment on
amounts due from other
Group undertakings -- -- (9,957) -- (9,957)
Retained loss for the
year -- -- -- (1,815) (1,815)
------ ------- ------- ------ -------
At 31 December 1996 37,527 394,196 326,162 22,009 779,894
Exercise of share
options -- 3 -- -- 3
Exchange adjustment on
amounts due from other
Group undertakings -- -- (282) -- (282)
Retained profit for the
year -- -- -- 2,978 2,978
------ ------- ------- ------ -------
At 31 December 1997 37,527 394,199 325,880 24,987 782,594
====== ======= ======= ====== =======
NOTE 19 CASH FLOW INFORMATION
a) Purchase of subsidiary undertakings
Businesses Acquired
------------------------
1997 1996
(Pounds)000 (Pounds)000
----------- -----------
Net assets acquired
Fixed assets 4,021 5,270
Other assets 6,288 3,038
Creditors (6,254) (6,282)
Provisions 619 (565)
------ ------
4,674 1,461
Minority interests -- (200)
Goodwill 1,757 7,788
------ ------
6,431 9,049
====== ======
Satisfied by:
Cash 7,737 9,049
Cash at bank acquired (1,306) --
------ ------
6,431 9,049
====== ======
41
b) Sale of businesses
Businesses Sold
------------------------
1997 1996
(Pounds)000 (Pounds)000
----------- -----------
Net assets sold:
Property and equipment 45,292 --
Current assets 23,174 --
Creditors (19,482) --
Provisions (4,945) --
------- ----
44,039 --
Minority interest (3,967) --
Goodwill 36,828 --
Foreign exchange rate changes (5,214) --
------- ----
71,686 --
======= ====
Cash proceeds:
Cash 73,254 --
Cash divested (1,568) --
------- ----
71,686 --
======= ====
c) Analysis of changes in net debt
Acquisitions Other non- Exchange
1 January 1997 Cash flow & Disposals cash changes movements 31 December 1997
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
-------------- ----------- ------------ ------------ ----------- ----------------
Cash 40,891 (2,383) -- -- (1,856) 36,652
Debt, short-term (188,583) 188,583 12,488 (83,509) 7,577 (63,444)
Due to Old WMI (90,376) 92,137 -- -- (2,429) (668)
Debt, long-term (362,982) 116,926 1,055 84,102 25,254 (135,645)
-------- ------- ------- ------- ------- --------
(601,050) 395,263 13,543 593 28,546 (163,105)
Liquid resources 3,241 (3,240) -- -- -- 1
-------- ------- ------- ------- ------- --------
Net debt (597,809) 392,023 13,543 593 28,546 (163,104)
======== ======= ======= ======= ======= ========
Liquid resources relate to term deposits only.
NOTE 20 GUARANTEES AND OTHER FINANCIAL COMMITMENTS
a) Capital commitments
Group
-----------------------
1997 1996
(Pounds)000 (Pounds)000
----------- -----------
At the end of the year, capital commitments were:
Contracted but not provided for 9,764 18,670
Authorised but not contracted for 4,565 8,032
In January 1998, the Group completed the sale of its waste-to-energy facility
in Hamm, Germany for approximately (Pounds)83,000,000. No material gain or
loss was recognised on the transaction under UK GAAP (and a gain of
(Pounds)9,000,000 under US GAAP). In 1997, the facility had turnover of
(Pounds)21,087,000 and had no material impact on retained profit.
42
b) Contingent liabilities
i) The Company has guaranteed debt and other liabilities of certain subsidiary
undertakings. The amount outstanding at 31 December 1997 was
(Pounds)259,311,000.
ii) Subsidiary undertakings have unsecured guarantees to third parties
outstanding amounting to (Pounds)20,710,000.
iii) The Group had 1,114 performance bonds outstanding at year end totalling
(Pounds)82,111,000 (Company--none).
iv) The Group provides for closure and post-closure monitoring costs over the
operating life of disposal sites as air space is consumed. These costs
include such items as the final cap and cover on the site, methane gas and
leachate management, and groundwater monitoring. The Group has also
established procedures to evaluate potential environmental remediation
liabilities at sites which it owns or operated, including sites acquired
in business combinations. Where the Group concludes that it is probable
that a liability has been incurred, provision is made in the financial
statements for the Group's best estimate of the liability. Such estimates
are subsequently revised as deemed necessary as additional information
becomes available. In connection with acquisitions, a review is made for
potential existing environmental liabilities of the acquired company, and
such liabilities are recognised through acquisition adjustments where they
meet the criteria of being probable and reasonably quantifiable.
At 31 December 1996 and 1997, total environmental provisions on the
accompanying balance sheet, including closure and post-closure but
excluding any reimbursement from Old WMI, were (Pounds)77,161,000 and
(Pounds)55,488,000 respectively.
v) In the ordinary course of conducting its business, the Group becomes
involved in litigation, administrative proceedings and governmental
investigations, including environmental matters. Some of these proceedings
may result in fines, penalties or judgements being assessed against the
Group which, from time to time, may have an impact on earnings for a
financial period. The directors do not believe that these proceedings,
individually or in the aggregate, are material to its business or financial
condition.
During the first quarter of 1995, the Group received an assessment from the
Swedish Tax Authority relating to a transaction completed in 1990. The
assessment is approximately 417 million Krona ((Pounds)32 million) plus
interest accruing on such assessment. The Group believes that all
appropriate tax returns and disclosures were properly filed at the time of
the transaction, and is vigorously contesting the assessment.
c) Lease commitments
The Group has entered into non-cancellable operating leases in respect of
vehicles and equipment, the payments for which extend over a period of up to
six years. The total annual rental for 1997 was (Pounds)7,131,000 (1996--
(Pounds)8,934,000). The lease agreements provide typically that the Group will
pay all insurance, maintenance and repairs.
In addition, the Group leases certain land and buildings on short- and long-
term operating leases. The annual rental on these leases was
(Pounds)12,547,000 (1996--(Pounds)12,756,000). The rents payable under these
leases are subject to renegotiation at various intervals specified in the
leases. The Group typically pays all insurance, maintenance and repairs of
these properties.
43
The annual rental commitments under the foregoing leases comprise:
Group
-----------------------
Vehicles
and
Property equipment
----------- -----------
(Pounds)000 (Pounds)000
1997
Operating leases which expire
- --within one year 728 629
- --within two-five years 4,083 3,288
- --after five years 2,966 569
----- -----
7,777 4,486
===== =====
1996
Operating leases which expire
- --within one year 1,005 1,106
- --within two-five years 3,186 1,549
- --after five years 4,623 437
----- -----
8,814 3,092
===== =====
d) Pension arrangements
The Group has defined benefit pension plans for selected eligible employees in
Sweden and the UK. The benefits are generally based on the employee's years of
service and compensation during a period of the employee's highest consecutive
earning years out of a given period of employment. It is the Group's policy to
fund the minimum required amount determined by local law and its actuaries.
The Swedish plan, mandated under a collective bargaining agreement, allows the
Group to retain pension plan fundings within its operations so long as it
contracts with an insurance company to guarantee its future employee pension
commitments. The pension cost is assessed in accordance with the advice of an
independent professionally qualified actuary.
Regular pension cost based on the discount rates of 7.7 per cent. in 1996 and
7.3 per cent. in 1997, included the following components:
1997 1996
(Pounds)000 (Pounds)000
----------- -----------
Service cost-benefits earned during the year 1,469 1,756
Interest cost on projected benefit obligation 1,647 1,413
Expected return on plan assets (1,523) (1,293)
Net amortisation and deferral (130) (135)
------ ------
Net regular pension cost 1,463 1,741
====== ======
Assumptions as of 31 December, which are used to determine the plans' funded
status at the respective dates, are as follows:
1997 1996
% %
---- ----
Discount rate 7.3 7.7
Rate of increase in compensation levels 5.0 5.3
Expected long-term rate of return on assets 8.5 8.5
44
The following table sets forth the plans' funded status and the amount
recognised in the Group's Balance Sheets at 31 December 1997 and 1996 for its
pension plans:
1997 1996
(Pounds)000 (Pounds)000
----------- -----------
ACTUARIAL PRESENT VALUE OF BENEFIT OBLIGATIONS:
Accumulated benefit obligations (all vested) (23,108) (19,061)
======= =======
Projected benefit obligation (26,115) (22,166)
Plan assets at fair value, primarily equities, bonds
and real estate 21,623 17,285
------- -------
Plan assets less than projected benefit obligation (4,492) (4,881)
Unrecognised net (gain)/loss 257 (120)
Unrecognised overfunding (1,162) (1,328)
------- -------
Pension cost included in accruals (5,397) (6,329)
======= =======
The Netherlands has a pension plan that is fully funded by the purchase of
non-participating annuity contracts. The regular pension cost of this plan for
1997 is (Pounds)388,000 (1996--(Pounds)534,000; 1995--(Pounds)486,000). Except
as noted above, there have been no significant changes in existing plans
during the period. The Group continues to evaluate the governmental, social
and retirement plans which cover its employees in the countries in which it
operates with the objective of implementing a plan or plans so that its
employees ultimately have available retirement benefits which are competitive
in the countries in which it operates. The Group has no post retirement
benefit plans other than the above pension plans. In respect of Mr. Falkman,
the Group maintains an unfunded, unapproved pension plan designed to provide
him with retirement benefits which are substantially the same as those
available under the plans of Old WMI existing in the United States and in
which he participated prior to joining the Group. Payments from such unfunded
plan will be disclosed when paid as a pension. During 1997, the Group accrued
(Pounds)22,200 in respect of Mr. Falkman's unfunded pension plan.
The Group also has eight defined contribution pension plans for selected
eligible employees in the UK, Australia, the Netherlands, Denmark, Sweden and
Hong Kong. These plans cover approximately 4,000 employees. Regular pension
cost was (Pounds)3,982,000 in 1997 (1996--(Pounds)4,202,000; 1995--
(Pounds)4,106,000).
The employees seconded from Old WMI, Chemical Waste Management, Inc. and WTI
are included in those companies' plans. The Group is charged for the costs
related to the seconded employees.
e) Derivatives
From time to time, the Group and certain of its subsidiaries use derivatives
to manage interest rate, currency and commodity (fuel) risk. The Group's
policy is to use derivatives for risk management purposes only, and it does
not enter into such contracts for trading purposes. The Group enters into
derivatives only with counterparties which are financial institutions of at
least A- or A3 credit ratings, to minimise credit risk. The amount of
derivatives outstanding at any one point in time and gains or losses from
their use have not been and are not expected to be material to the Group's
financial statements.
Instruments used as hedges must be effective at managing risk associated with
the exposure being hedged and must be designated as a hedge at the inception
of the contract. Accordingly, changes in market values of hedge instruments
must have a high degree of inverse correlation with changes in market values
or cash flows of underlying hedged items. Derivatives that meet the hedge
criteria are accounted for under the deferral or accrual method, except for
currency agreements as discussed below. If a derivative does not meet or
ceases to meet the aforementioned criteria, or if the designated hedged time
ceases to exist, then the Group subsequently uses fair value accounting for
the derivative, with gains or losses included in sundry income. If a
derivative is terminated early, any gain or loss, including amounts previously
deferred, is deferred and amortised over the remaining life of the terminated
contract or until the anticipated transaction occurs.
45
Interest Rate Agreements
Certain of the Group's subsidiaries have entered into interest rate swap
agreements to balance fixed and floating rate debt in accordance with
management's criteria. The agreements are contracts to exchange fixed and
floating interest rate payments periodically over a specified term without the
exchange of the underlying notional amounts. The agreements provide only for
the exchange of interest on the notional amounts at the stated rates, with no
multipliers or leverage. Differences paid or received are accrued in the
financial statements as part of interest expense on the underlying debt over
the life of the agreements and the swap is not recorded on the balance sheet
or marked to market. As of 31 December 1997, interest rate agreements in
notional amounts and with terms set forth in the following table were
outstanding:
Currency Notional Amount Receive Pay Duration of Agreements
- ------------------ --------------- -------- ----- ----------------------
Hong Kong Dollar 100 million Floating Fixed Jan 1996-July 1998
Italian Lira 98 billion Floating Fixed Mar 1996-Mar 1999
German Deutschmark 150 million Floating Fixed Mar 1996-Jan 2000
Dutch Guilder 115 million Floating Fixed Nov 1996-Jan 2000
Currency Agreements
From time to time, the Group uses foreign currency derivatives to mitigate the
impact of translation on foreign earnings. Typically these have taken the form
of put options and offsetting put and call options with different strike
prices. The Group receives or pays, based on the notional amount of the
option, the difference between the average exchange rate of the hedged
currency against the base currency and the average (strike price) contained in
the option. Complex instruments involving multipliers or leverage are not
used. While the Group may incur an expense in connection with these
agreements, it will recognise an offsetting increase in the translation of
foreign earnings or income from foreign investees. Although the purpose for
using such derivatives is to mitigate currency risk, they do not qualify for
hedge accounting under generally accepted accounting principles and
accordingly, must be adjusted to market value at the end of each accounting
period. Gains and losses on currency derivatives to date have not been
material. There were no currency derivatives outstanding at 31 December 1997
of the type listed above. In 1997 the Group entered into a foreign forward
exchange contract in the amount of 60.3 million Dutch Guilders to sell Italian
Lire. This was to hedge certain intercompany loans to Italian subsidiaries
which are expected to be repaid in 1998.
In addition, the Group entered into a contract to sell amounts equivalent to
the amounts expected to be received in 1999, 2000, 2001, and 2002 related to
the interest on certain loan notes received by the Group as part of the
consideration for the sale of the Group's French subsidiaries.
Commodity Agreements
The Group utilises derivatives to seek to mitigate the impact of fluctuations
in the price of fuel used by its vehicles. The primary instrument used is a
zero-cost collar. Quantities hedged do not exceed anticipated fuel purchases.
Gains or losses are recognised in operating expenses, as cost of fuel
purchases, when paid or received. The Group had no contracts outstanding at
31 December 1997.
NOTE 21 FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value amounts have been determined by the Group, using
available market information and commonly accepted valuation methodologies.
However, considerable judgement is necessarily required in interpreting market
data to develop the estimates of fair value. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts that the Group
or the holders of the instruments could realise in a current market exchange.
The use of different market assumptions and/or estimation methodologies may
have a material effect on the estimated fair value amounts. The fair value
estimates presented are based on information available at 31 December 1997 and
1996, and such amounts have not been revalued since those dates.
46
31 December 1997 31 December 1996
------------------------ ------------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
----------- ----------- ----------- -----------
Non-derivatives--
Cash at bank and in hand 36,652 36,652 40,891 40,891
Trade debtors 222,700 222,700 300,308 300,308
Other fixed and current
asset investments 1,625 1,625 187,157 187,157
Long-term debt (199,089) (199,089) (551,565) (551,565)
Amounts due to Old WMI (668) (668) (90,376) (90,203)
Derivatives relating to
debt -- (3,259) -- (2,780)
Other derivatives carried
as--
Prepayments -- -- -- --
Accruals and deferred
income -- -- -- (48)
Letters of credit, bonds
and guarantees -- -- -- --
Cash and trade debtors
The carrying amounts of these items are considered a reasonable estimate of
their fair value.
Investments
The quoted market prices or contracted sale price of listed investments were
used as fair value.
Long-term debt
Interest rates currently available to the Group for debt with similar terms
and remaining maturities were used to estimate fair value.
Derivatives
The fair value of derivatives generally reflects the estimated amounts that
the Group would receive or pay to terminate the contracts at 31 December,
thereby taking into account unrealised gains and losses.
Dealer quotes are available for most of the Group's derivatives. Deferred
realised gains and losses are shown as assets and liabilities as offsetting
such amounts against the related non-derivative instruments is permitted only
pursuant to a right of setoff or a master netting agreement.
Off-balance sheet financial instruments
In the normal course of business, the Group is a party to financial
instruments with off-balance sheet risk, such as bank letters of credit,
performance bonds and other guarantees, which are not reflected in the Group
balance sheet. Such instruments are valued based on the amount of exposure
under the instrument and the likelihood of performance being required. The
directors do not expect any material losses to result from these instruments,
and therefore are of the opinion that the fair value is (Pounds)nil.
NOTE 22 EXCEPTIONAL CHARGES
In 1995, the Group recorded an exceptional charge of (Pounds)123,160,000
before income taxes, which reduced retained profit by (Pounds)96,400,000. This
charge was the result of an extensive review of operations to refocus the
Group on its core waste business and to streamline its country management
structure. The charge related to consolidation of country and regional
offices, reduction of office staffing levels and the centralisation of certain
functions in
47
the country organisations to improve efficiencies. Certain non-core businesses
and investments were discontinued or sold, as well as core businesses and
investments located in low-potential markets. Certain hazardous waste
treatment technologies and processes were abandoned where the expected returns
did not justify the current market risk. The charge included
(Pounds)22,000,000 of future cash payments for employee severance and rents
under non-cancellable leases. Approximately (Pounds)7,000,000 was paid prior
to 31 December 1995, with (Pounds)8,000,000 paid in 1996 and (Pounds)4,000,000
paid in 1997. The balance is primarily payments on leased facilities that will
continue into the future.
Following a strategic assessment in 1996 of the Group's European markets, the
Group decided to reduce its investment in France, Spain and Austria, through
the sale of various operations in those countries. In addition, the Group
wrote off the investment in its hazardous waste disposal facility in Germany
because regulatory changes had adversely affected its volumes. Substantially
all of these businesses were sold in 1997. These decisions resulted in a 1996
fourth quarter exceptional charge of (Pounds)127,735,000 before and after
taxes, reducing the carrying value of these businesses to their estimated
realised value.
In the fourth quarter of 1997 the Group recorded a charge of
(Pounds)65,456,000 before tax and minority interest (net of residual
provisions no longer required of (Pounds)14,255,000), related to:
(a) abandonment of certain development projects no longer considered feasible
due to economic and competitive conditions;
(b) write down to estimated realisable value of certain businesses to be sold
or closed, primarily in Italy and Germany;
(c) provision for severance, demobilisation and loss on disposition of
operating assets in connection with the loss of the bid for the renewal of the
cleaning contract for the City of Buenos Aires, Argentina; and
(d) severance and other costs related to reorganisation of operations and
legal structure primarily in Italy, Sweden and the United Kingdom.
Approximately (Pounds)9,000,000 of the charge consists of cash costs related
to severance which are expected to be paid in 1998.
NOTE 23 ULTIMATE PARENT COMPANY
The Company's ultimate parent company is Old WMI incorporated in Delaware,
USA.
The only group of which the Company is a member and in which its results are
consolidated is that headed by Old WMI. The consolidated accounts of this
group are available to the public and may be obtained from Old WMI, 3003
Butterfield Road, Oak Brook, Illinois 60521, USA.
The Company has entered into the following contracts of significance with Old
WMI and its affiliates:
i) Third Amended and Restated International Development Agreement, dated 1
January 1993, which provides for the exercise of voting rights by Old WMI,
WTI and Rust in connection with the election of directors to the Board of
the Company and confers subscription rights on each of Rust and WTI to
maintain a 10 per cent. equity interest in the Company and on Old WMI to
maintain, together with its subsidiaries, an aggregate 55 per cent.
interest;
ii) First Amended and Restated International Business Opportunities Agreement
("IBOA"), dated 1 January 1993, whereby business opportunities throughout
the world are allocated amongst the Group and various other subsidiaries
of Old WMI. By an Amendment Agreement dated 10 July 1995, the IBOA was
amended with the approval of the Company's shareholders (other than Old
WMI, WTI and Rust), to modify the allocation of waste-to-energy business
opportunities outside North America, Germany and Italy.
48
NOTE 24 US ACCOUNTING PRINCIPLES
Goodwill
US GAAP requires that goodwill be amortised over its estimated useful life not
to exceed 40 years. As permitted under UK GAAP, the cost of goodwill is
written off directly to reserves in the year in which it arises. For the
purposes of the reconciliations shown below, goodwill acquired has been
capitalised and amortised over its estimated useful life of 40 years.
Profit attributable to shareholders, earnings per ordinary share and equity
shareholders' funds
The following is a summary of material adjustments to profit for the financial
year attributable to shareholders, to earnings per ordinary share and to
equity shareholders' funds which would be required if US GAAP had been
applied.
Group
------------------------
1997 1996
(Pounds)000 (Pounds)000
----------- -----------
Profit/(loss) for the financial year attributable
to shareholders 21,298 (66,199)
Adjustment of accumulated goodwill amortisation on
the exceptional charge and the write down of
investment 2,047 8,260
Amortisation of goodwill, net of related minority
interest (19,446) (24,075)
------- ---------
As adjusted to conform with US GAAP 3,899 (82,014)
======= =========
EARNINGS/(LOSS) PER ORDINARY SHARE
Earnings/(loss) per ordinary share as adjusted to
conform with US GAAP 1.0p (21.9)p
======= =========
EQUITY SHAREHOLDERS' FUNDS
Equity shareholders' funds 345,286 314,902
Increase for unamortised goodwill, net of related
minority interest 627,123 742,398
------- ---------
As adjusted to conform with US GAAP 972,409 1,057,300
======= =========
As a result of the sale of the shareholding in Wessex, as discussed in Note
10c, the Company recorded a loss before income tax of (Pounds)18,500,000 and
income taxes of (Pounds)19,030,000. In addition, the 1996 special charge
resulted in a before and after tax loss of (Pounds)127,735,000. These net
losses of (Pounds)165,265,000 were determined under UK GAAP. Under US GAAP,
the loss before income tax would be (Pounds)137,975,000, income taxes would
have been (Pounds)19,030,000, resulting in a net loss of (Pounds)157,005,000.
The difference between the UK GAAP and US GAAP accounting is all related to
the different treatment of historical goodwill amortisation discussed above.
In 1997 the Company recorded an exceptional charge of (Pounds)50,035,000 after
tax determined under UK GAAP. Under US GAAP the exceptional charge would have
been (Pounds)47,988,000 principally reflecting the different treatment of
historical goodwill discussed above.
49
Balance sheets
The following is a summary of certain balance sheet captions and the amounts
reported in the Group balance sheet, together with the related amounts as
adjusted to conform with US GAAP.
As reported in the As adjusted to
Group balance sheet conform with US GAAP
------------------------ ------------------------
1997 1996 1997 1996
(Pounds)000 (Pounds)000 (Pounds)000 (Pounds)000
----------- ----------- ----------- -----------
Tangible fixed assets 653,851 766,819 653,851 766,819
Fixed asset investments 6,349 10,442 6,349 10,442
Intangible fixed assets -- -- 748,285 866,642
Current assets 442,618 766,179 442,618 766,179
Creditors falling due
- --within one year (398,389) (529,071) (398,389) (529,071)
- --after one year (136,313) (453,358) (136,313) (453,358)
Provisions for liabilities
and charges (107,300) (125,935) (107,300) (125,935)
-------- -------- --------- ---------
Net assets 460,816 435,076 1,209,101 1,301,718
======== ======== ========= =========
Equity shareholders' funds 345,286 314,902 972,409 1,057,300
Minority interests 115,530 120,174 236,692 244,418
-------- -------- --------- ---------
Total capital employed 460,816 435,076 1,209,101 1,301,718
======== ======== ========= =========
NOTE 25 SUBSEQUENT EVENT
On 11 March 1998, Old WMI entered into a merger agreement with WMI of the
United States. The merger agreement, which is subject to approval by the
shareholders of both companies, provides that upon consummation of the merger
Old WMI's shareholders will receive 0.725 shares of WMI's common stock for
each share of Old WMI common stock held immediately prior to the merger. If
approved by the shareholders, the transaction is expected to close in the
latter part of 1998.
Consummation of the merger agreement may affect certain of the Group's rights
and obligations under contracts containing a change of control provision. The
Group has not yet completed its evaluation of all of its contracts, however,
it is believed that, with the exception of the following contracts, the merger
will not materially affect the Group's rights or obligations under any
significant contract.
The Facility contains certain change of control provisions which may be
triggered by the Old WMI merger. Should the transactions between Old WMI and
WMI be consummated as currently structured and be deemed to constitute a
change of control for the purposes of the Facility, then the lenders under the
Facility will have the right to terminate the agreement on three months'
notice following the change of control. As of 17 March 1998, the Group had
approximately (Pounds)43 million outstanding under the Facility. The Group
believes that its relationships with the banks comprising the lending
consortium are such that, even if the Old WMI transaction constitutes a change
of control, it will be able to negotiate satisfactory credit facilities to
replace the existing Facility in adequate amounts and on commercially
reasonable terms.
The Group's joint venture agreement with Wessex provides that under certain
circumstances generally involving an offer being made for all of the
outstanding shares of Old WMI, Wessex has a right to purchase the Group's
joint venture interest in Wessex Waste Management for the then fair market
value. The proposed merger agreement between Old WMI and WMI, if consummated
as currently structured, may constitute a triggering event under such
provision. In 1997, the Group had turnover of (Pounds)167.8 million and
operating profit (before minority interest) of (Pounds)21.9 million from the
joint venture. The Group's carrying value (including goodwill) was
(Pounds)212.6 million as of 31 December 1997. At this time, it is impossible
to determine whether such a transaction would result in a gain or a loss
because the price for such a sale is currently unknown.
50
PART 4
INFORMATION ON WMI
The following combined unaudited pro forma condensed financial statements are
based upon the historical financial statements of WMI and Old WMI. These
combined unaudited pro forma condensed financial statements give effect to the
Merger by combining the balance sheets and results of operations of WMI and
Old WMI using the pooling of interests method of accounting as if the
companies had been combined since their inception and as if Old WMI had issued
20 million shares of Old WMI common stock as of 31 March 1998. The combined
unaudited pro forma condensed financial information is presented for
illustrative purposes only and is not necessarily indicative of the operating
results or financial position that would have been achieved had the Merger
been consummated as of the beginning of the periods presented, nor is it
necessarily indicative of the future operating results or financial position
of WMI. The combined unaudited pro forma condensed financial information does
not give effect to any possible divestitures of business units required by the
US antitrust regulatory authorities or to any cost savings which may result
from the integration of WMI and Old WMI's operations, nor does such
information include the nonrecurring costs directly related to the Merger
which are expected to be included in operations of WMI within 12 months
following the Merger. Such nonrecurring costs have yet to be determined;
however, such costs are expected to be significant.
51
COMBINED UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
31 MARCH 1998
The following combined unaudited pro forma condensed balance sheet presents
the combined financial position of WMI and Old WMI as of 31 March 1998. Such
unaudited pro forma combined condensed balance sheet is based on the
historical balance sheets of WMI and Old WMI as of 31 March 1998, after giving
effect to the Merger using the pooling of interests method of accounting and
to the pro forma adjustments as described in the notes to combined pro forma
condensed financial statements.
Pro Forma Combined
WMI Old WMI Adjustments Pro Forma
------------ ------------- ---------------- --------------
(In thousands, except share and par value amounts)
ASSETS
CURRENT ASSETS:
Cash and cash
equivalents $ 46,260 $ 311,861 $ -- $ 358,121
Short-term investments -- 3,053 -- 3,053
Accounts receivable,
net 468,619 1,448,797 -- 1,917,416
Notes and other
receivables 56,321 26,577 -- 82,898
Deferred income taxes 46,196 -- -- 46,196
Costs and estimated
earnings in excess of
billings on
uncompleted contracts -- 158,964 -- 158,964
Prepaid expenses and
other 58,891 230,374 -- 289,265
------------ ------------- ----------- -------------
Total current assets 676,287 2,179,626 -- 2,855,913
Notes and other
receivables 22,951 100,044 -- 122,995
Property and equipment,
net 4,601,573 7,126,426 (10,922)(a) 11,617,441
(99,636)(b)
Excess of cost over net
assets of acquired
businesses, net 1,905,285 3,674,333 (66,464)(a) 5,513,154
Other intangible
assets, net 126,526 11,746 -- 138,272
Net assets of
continuing businesses
held for sale -- 137,995 -- 137,995
Other assets 256,783 633,830 (28,124)(c) 862,489
------------ ------------- ----------- -------------
Total assets $ 7,589,405 $ 13,864,000 $(205,146) $ 21,248,259
============ ============= =========== =============
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 196,735 $ 687,419 $ -- $ 884,154
Accrued liabilities 185,631 1,683,398 -- 1,869,029
Obligation to former
Wheelabrator
Technologies Inc.
shareholders -- 876,232 (614,400)(d) 261,832
Deferred revenues 69,484 236,339 -- 305,823
Current maturities of
long-term debt 46,527 1,025,685 -- 1,072,212
------------ ------------- ----------- -------------
Total current
liabilities 498,377 4,509,073 (614,400)(d) 4,393,050
Long-term debt, less
current maturities 3,584,887 5,398,132 -- 8,983,019
Deferred income taxes 323,320 216,797 (25,029)(a) 520,293
5,205 (b)
Closure, post-closure,
and other liabilities 407,699 1,645,663 (85,557)(b) 1,967,805
------------ ------------- ----------- -------------
Total liabilities 4,814,283 11,769,665 (719,781) 15,864,167
------------ ------------- ----------- -------------
Minority interest in
subsidiaries -- 739,442 -- 739,442
------------ ------------- ----------- -------------
52
COMBINED UNAUDITED PRO FORMA CONDENSED BALANCE SHEET (CONTINUED)
31 MARCH 1998
Pro Forma Combined
WMI Old WMI Adjustments Pro Forma
---------- ----------- ----------- -----------
(In thousands, except share and par value
amounts)
Commitments and contin-
gencies
STOCKHOLDERS' EQUITY:
Preferred stock:
WMI: $.01 par value;
10,000,000 shares
authorized; none issued -- -- -- --
Old WMI: $1 par value;
50,000,000 shares autho-
rized; none outstanding -- -- -- --
Common stock:
WMI: $.01 par value,
500,000,000 shares
authorized; historical
219,834,550 shares
(572,269,938 pro forma
shares) issued 2,198 -- 3,525 (d) 5,723
Old WMI: $1 par value;
1,500,000,000 shares au-
thorized; 507,101,744
shares issued -- 507,102 (507,102)(d) --
Additional paid-in capi-
tal 2,436,447 990,270 (11,250)(c) 3,267,468
(147,999)(d)
Retained earnings 374,459 1,730,516 (34,888)(a) 2,033,929
(19,284)(b)
(16,874)(c)
Accumulated other compre-
hensive income (37,498) -- (278,800)(e) (316,298)
Foreign currency transla-
tion adjustment -- (253,938) (17,469)(a) --
271,407 (c)
TREASURY STOCK:
WMI: 23,485 shares, at
cost (484) -- -- (484)
Old WMI: 40,983,967
shares, at cost -- (1,265,976) 1,265,976 (d) --
Restricted stock unearned
compensation -- (10,252) -- (10,252)
Employee stock benefit
trust; 10,886,361 Old
WMI shares, at market
(7,892,612 pro forma
shares) -- (335,436) -- (335,436)
Minimum pension liability -- (7,393) 7,393 (e) --
---------- ----------- --------- -----------
Total stockholders' eq-
uity 2,775,122 1,354,893 514,635 4,644,650
---------- ----------- --------- -----------
Total liabilities and
stockholders' equity $7,589,405 $13,864,000 $(205,146) $21,248,259
========== =========== ========= ===========
See notes to combined unaudited pro forma condensed financial statements.
53
COMBINED UNAUDITED PRO FORMA CONDENSED
STATEMENT OF OPERATIONS
The following combined unaudited pro forma condensed statement of operations
for the three months ended 31 March 1998 was prepared based on the historical
statements of operations of WMI and Old WMI for such period after giving
effect to the Merger using the pooling of interests method of accounting and
to the pro forma adjustments described in the notes to combined unaudited pro
forma condensed financial statements.
Three Months Ended 31 March 1998
------------------------------------------------
Pro Forma Combined
WMI Old WMI Adjustments Pro Forma
-------- ---------- ----------- ----------
(In thousands, except per share amounts)
Operating revenues $769,440 $2,131,621 $ -- $2,901,061
-------- ---------- -------- ----------
COSTS AND EXPENSES:
Operating (exclusive of
depreciation and
amortization shown below) 397,492 1,621,985 3,785 (b) 1,757,707
(265,555)(f)
General and administrative 81,916 263,882 (217)(f) 345,581
Depreciation and
amortization 86,110 -- (424)(a) 351,458
265,772 (f)
Loss from continuing
operations held for sale,
net of minority interest -- 2,416 -- 2,416
-------- ---------- -------- ----------
565,518 1,888,283 3,361 2,457,162
-------- ---------- -------- ----------
Income from operations 203,922 243,338 (3,361) 443,899
-------- ---------- -------- ----------
OTHER INCOME (EXPENSES):
Interest expense (38,368) (115,574) -- (153,942)
Interest income 1,799 4,310 -- 6,109
Minority interests -- (25,302) -- (25,302)
Other income, net 34,251 64,196 (28,124)(c) 70,323
-------- ---------- -------- ----------
(2,318) (72,370) (28,124) (102,812)
-------- ---------- -------- ----------
Income before income taxes 201,604 170,968 (31,485) 341,087
Provision for income taxes 80,642 96,551 170 (a) 161,815
(4,298)(b)
(11,250)(c)
-------- ---------- -------- ----------
Net income $120,962 $ 74,417 $(16,107) $ 179,272
======== ========== ======== ==========
Basic earnings per common
share $ 0.55 $ 0.16 $ 0.33
======== ========== ==========
Diluted earnings per common
share $ 0.52 $ 0.16 $ 0.32
======== ========== ==========
Weighted average number of
common shares outstanding 219,201 455,096 (125,151)(g) 549,146
======== ========== ======== ==========
Weighted average number of
common and dilutive poten-
tial common shares out-
standing 244,250 455,296 (125,206)(g) 574,340
======== ========== ======== ==========
See notes to combined unaudited pro forma condensed financial statements.
54
COMBINED UNAUDITED PRO FORMA CONDENSED
STATEMENT OF OPERATIONS
The following combined unaudited pro forma condensed statement of operations
for the year ended 31 December 1997 was prepared based on the historical
statements of operations of WMI and Old WMI for such year after giving effect
to the Merger using the pooling of interests method of accounting and to the
pro forma adjustments described in the notes to combined unaudited pro forma
condensed financial statements.
Year Ended 31 December 1997
----------------------------------------------------
Pro Forma Combined
WMI Old WMI Adjustments Pro Forma
---------- ----------- ----------- -----------
(In thousands, except per share amounts)
Operating revenues $2,613,768 $ 9,188,582 $ -- $11,802,350
---------- ----------- ----------- -----------
COSTS AND EXPENSES:
Operating (exclusive of
depreciation and
amortization shown
below) 1,345,769 7,195,376 17,766 (b) 7,479,745
(1,079,166)(f)
General and
administrative 284,946 1,129,237 (939)(f) 1,413,244
Depreciation and
amortization 303,241 -- (990)(a) 1,382,356
1,080,105 (f)
Merger costs 109,411 -- -- 109,411
Unusual items 24,720 1,626,252 -- 1,650,972
Loss from continuing
operations held for
sale, net of minority
interest -- 9,930 -- 9,930
---------- ----------- ----------- -----------
2,068,087 9,960,795 16,776 12,045,658
---------- ----------- ----------- -----------
Income (loss) from
operations 545,681 (772,213) (16,776) (243,308)
---------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (104,261) (446,888) -- (551,149)
Interest income 7,634 37,580 -- 45,214
Minority interest -- (45,442) -- (45,442)
Other income, net 14,213 173,290 (61,331)(a) 126,172
---------- ----------- ----------- -----------
(82,414) (281,460) (61,331) (425,205)
---------- ----------- ----------- -----------
Income (loss) from
continuing operations
before income taxes 463,267 (1,053,673) (78,107) (668,513)
Provision for income
taxes 189,944 215,667 (25,199)(a) 361,464
(18,948)(b)
---------- ----------- ----------- -----------
Income (loss) from
continuing operations $ 273,323 $(1,269,340) $ (33,960) $(1,029,977)
========== =========== =========== ===========
Basic earnings (loss)
per common share from
continuing operations $ 1.31 $ (2.72) $ (1.88)
========== =========== ===========
Diluted earnings (loss)
per common share from
continuing operations $ 1.26 $ (2.72) $ (1.88)
========== =========== ===========
Weighted average number
of common shares
outstanding 208,246 466,601 (128,315)(g) 546,532
========== =========== =========== ===========
Weighted average number
of common and dilutive
potential common
shares outstanding 233,371 466,601 (153,440)(g) 546,532
========== =========== =========== ===========
See notes to combined unaudited pro forma condensed financial statements.
55
COMBINED UNAUDITED PRO FORMA CONDENSED
STATEMENT OF OPERATIONS
The following combined unaudited pro forma condensed statement of operations
for the year ended 31 December 1996 was prepared based on the historical
statements of operations of WMI and Old WMI for such year after giving effect
to the Merger using the pooling of interests method of accounting and to the
pro forma adjustments described in the notes to combined unaudited pro forma
condensed financial statements.
Year Ended 31 December 1996
---------------------------------------------------
Pro Forma Combined
WMI Old WMI Adjustments Pro Forma
---------- ---------- ----------- -----------
(In thousands, except per share amounts)
Operating revenues $1,649,131 $9,225,636 $ -- $10,874,767
---------- ---------- ----------- -----------
COSTS AND EXPENSES:
Operating (exclusive of
depreciation and
amortization shown
below) 881,401 6,660,766 21,135 (b) 6,498,708
(1,064,594)(f)
General and
administrative 200,101 1,095,459 (1,089)(f) 1,294,471
Depreciation and
amortization 191,044 -- 1,065,683 (f) 1,256,727
Merger costs 126,626 -- -- 126,626
Unusual items 63,800 435,464 -- 499,264
Income from continuing
operations held for
sale, net of minority
interest -- (315) -- (315)
---------- ---------- ----------- -----------
1,462,972 8,191,374 21,135 9,675,481
---------- ---------- ----------- -----------
Income from operations 186,159 1,034,262 (21,135) 1,199,286
---------- ---------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (60,497) (462,424) -- (522,921)
Interest income 6,699 27,904 -- 34,603
Minority interest -- (41,289) -- (41,289)
Other income, net 6,376 102,014 -- 108,390
---------- ---------- ----------- -----------
(47,422) (373,795) -- (421,217)
---------- ---------- ----------- -----------
Income from continuing
operations before income
taxes 138,737 660,467 (21,135) 778,069
Provision for income
taxes 70,398 436,473 (20,255)(b) 486,616
---------- ---------- ----------- -----------
Income from continuing
operations $ 68,339 $ 223,994 $ (880) $ 291,453
========== ========== =========== ===========
Basic earnings per common
share from continuing
operations $ 0.39 $ 0.46 $ 0.55
========== ========== ===========
Diluted earnings per
common share from
continuing operations $ 0.37 $ 0.46 $ 0.54
========== ========== ===========
Weighted average number
of common shares
outstanding 173,993 489,171 (134,522)(g) 528,642
========== ========== =========== ===========
Weighted average number
of common and dilutive
potential common shares
outstanding 182,680 490,029 (134,758)(g) 537,951
========== ========== =========== ===========
See notes to combined unaudited pro forma condensed financial statements.
56
COMBINED UNAUDITED PRO FORMA CONDENSED
STATEMENT OF OPERATIONS
The following combined unaudited pro forma condensed statement of operations
for the year ended 31 December 1995 was prepared based on the historical
statements of operations of WMI and Old WMI for such year after giving effect
to the Merger using the pooling of interests method of accounting and to the
pro forma adjustments described in the notes to combined unaudited pro forma
condensed financial statements.
Year Ended 31 December 1995
---------------------------------------------------
Pro Forma Combined
WMI Old WMI Adjustments Pro Forma
---------- ---------- ----------- -----------
(In thousands, except per share amounts)
Operating revenues $1,216,082 $9,100,225 $ -- $10,316,307
---------- ---------- ----------- -----------
COSTS AND EXPENSES:
Operating (exclusive of
depreciation and
amortization shown
below) 672,117 6,514,932 22,924 (b) 6,176,196
(1,033,777)(f)
General and
administrative 169,686 1,091,747 (1,241)(f) 1,260,192
Depreciation and
amortization 143,878 -- 1,035,018 (f) 1,178,896
Merger costs 26,539 -- -- 26,539
Unusual items 4,733 389,359 -- 394,092
Income from continuing
operations held for
sale, net of minority
interest -- (25,110) -- (25,110)
---------- ---------- ----------- -----------
1,016,953 7,970,928 22,924 9,010,805
---------- ---------- ----------- -----------
Income from operations 199,129 1,129,297 (22,924) 1,305,502
---------- ---------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense:
Nonrecurring (10,994) -- -- (10,994)
Other (58,619) (463,861) -- (522,480)
Interest income 6,682 34,883 -- 41,565
Minority interest -- (81,367) -- (81,367)
Other income, net 4,891 252,695 -- 257,586
---------- ---------- ----------- -----------
(58,040) (257,650) -- (315,690)
---------- ---------- ----------- -----------
Income from continuing
operations before income
taxes 141,089 871,647 (22,924) 989,812
Provision for income
taxes 60,313 451,741 (19,169)(b) 492,885
---------- ---------- ----------- -----------
Income from continuing
operations $ 80,776 $ 419,906 $ (3,755) $ 496,927
========== ========== =========== ===========
Basic earnings per common
share from continuing
operations $ 0.56 $ 0.86 $ 1.00
========== ========== ===========
Diluted earnings per
common share from
continuing operations $ 0.54 $ 0.86 $ 0.99
========== ========== ===========
Weighted average number
of common shares
outstanding 143,346 485,346 (133,470)(g) 495,222
========== ========== =========== ===========
Weighted average number
of common and dilutive
potential common shares
outstanding 150,575 500,312 (137,586)(g) 513,301
========== ========== =========== ===========
See notes to combined unaudited pro forma condensed financial statements.
57
NOTES TO COMBINED UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The combined unaudited pro forma condensed financial statements assume the
issuance of WMI Common Stock in exchange for all outstanding Old WMI Common
Stock. Such financial statements also assume that the Merger will be accounted
for using the pooling of interests method of accounting pursuant to Opinion
No. 16 of the Accounting Principles Board. The pooling of interests method of
accounting assumes that the combining companies have been merged from their
inception, and the historical financial statements for periods prior to
consummation of the Merger are restated as though the companies had been
combined from their inception.
Pursuant to the rules and regulations of the US Securities and Exchange
Commission, the combined unaudited pro forma condensed statements of
operations exclude the results of operations associated with discontinued
businesses, extraordinary items and cumulative effects of accounting changes.
The combined unaudited pro forma condensed financial statements do not give
effect to any cost savings which may result from the integration of WMI's and
Old WMI's operations, nor do they include the nonrecurring costs directly
related to the Merger which are expected to be included in operations of WMI
within twelve months succeeding the Merger. Such nonrecurring costs have yet
to be determined; however, such costs are expected to be significant.
Certain reclassifications have been made to the historical financial
statements of WMI and Old WMI to conform to the pro forma presentation. Such
reclassifications are not material to the combined unaudited pro forma
condensed financial statements
2. PRO FORMA ADJUSTMENTS
(a) In June 1997, Old WMI sold a majority of its Canadian solid waste
businesses to WMI and, as a result of such sale, recorded a pre-tax gain of
approximately $61,331,000. WMI accounted for this transaction as a purchase
business combination and allocated the purchase price to the assets acquired
and liabilities assumed accordingly. Assuming that WMI and Old WMI had been
combined since their inception, the gain recorded by Old WMI in 1997 has been
eliminated and the basis recorded by WMI for assets acquired and liabilities
assumed has been restored to Old WMI's historical book value. In addition, the
Combined Unaudited Pro Forma Condensed Statement of Operations for the year
ended 31 December 1997 and the three months ended 31 March 1998 have been
adjusted for the effect of lower amortization as a result of restoring the
book basis of the assets acquired and liabilities assumed by WMI to the
historical book value of Old WMI.
(b) Adjustments have been made to conform the accounting for certain landfill
related issues as if the companies had been combined since their inception.
The net impact of those adjustments on income (loss) from continuing
operations was an increase of $1,182,000 and $513,000 for the year ended 31
December 1997 and the three months ended 31 March 1998, respectively, and a
decrease of $3,755,000 and $880,000 for the years ended 31 December 1995 and
1996, respectively.
(c) In November 1997, WMI purchased a 49 per cent. limited partner interest in
LJ Water Partners, L.P. ("the Limited Partnership"), which was formed for the
purpose of acquiring shares of Old WMI Common Stock on the open market. The
Limited Partnership purchased shares of Old WMI Common Stock during November
1997 and sold substantially all of such shares in March 1998. For the three
months ended 31 March 1998, WMI recorded other income of $28,124,000 for its
equity in the earnings of the Limited partnership. An adjustment has been made
to reverse WMI's equity in the earnings of the Limited Partnership to account
for the transaction as if the companies had been combined since their
inception.
58
(d) The stockholders' equity accounts have been adjusted to reflect the
assumed issuance of 352,435,388 shares of WMI Common Stock for the 486,117,777
shares of Old WMI Common Stock issued and outstanding based on an exchange
ratio of 0.725 of a share of WMI Common Stock for each outstanding share of
Old WMI Common Stock. The assumed issuance of shares considers the 507,101,744
shares of Old WMI Common Stock issued, the 40,983,967 shares of Old WMI Common
Stock held in treasury that will be cancelled upon consummation of the Merger,
and the 20 million shares of Old WMI Common Stock expected to be issued to
reverse certain share repurchases effected by Old WMI. Assuming that 20
million shares of Old WMI Common Stock are issued through a public sale at an
offering price of $32 per share and net issuance costs of 4 per cent., net
proceeds would be $614,400,000, which would be used to reduce the obligation
to former WTI stockholders. See Note 3 below. The actual number of shares of
WMI Common Stock to be issued pursuant to the Merger will be based upon the
number of shares of Old WMI Common Stock issued and outstanding immediately
prior to the consummation of the Merger.
(e) Adjustments have been made to reclassify Old WMI's foreign currency
translation adjustment and minimum pension liability to accumulated other
comprehensive income to conform to the presentation of WMI as if the companies
had been combined since their inception.
(f) Adjustments have been made to reclassify Old WMI's depreciation and
amortization from operating expenses and general and administrative expenses
to a separate line item to conform to the presentation of WMI as if the
companies had been combined since their inception.
(g) Pro forma basic earnings per common share for each period are based on the
combined weighted average number of common shares outstanding, after giving
effect to the issuance of 0.725 of a share of WMI Common Stock for each share
of Old WMI Common Stock. Pro forma diluted earnings per common share for each
period are based on the combined weighted average number of common and
dilutive potential common shares outstanding, after giving effect to the
issuance of 0.725 of a share of WMI Common Stock for each outstanding share of
Old WMI Common Stock. The combined weighted average shares outstanding used in
the pro forma basic and diluted earnings per share calculations are net of the
shares of Old WMI Common Stock that are held by the Old WMI employee stock
benefit trust and are treated similar to treasury shares for earnings per
share calculation purposes. The combined pro forma diluted earnings per share
for the year ended 31 December 1995 and the three months ended 31 March 1998
have been calculated assuming conversion of certain convertible debt, and
therefore interest, net of taxes, $9,100,000 and $5,014,000, respectively, has
been added back to income from continuing operations for this calculation. The
WMI diluted earnings per common share for the year ended 31 December 1997
includes 25,125,000 dilutive potential common shares that become antidilutive
for purposes of calculating the combined pro forma diluted earnings per common
share.
3. PRO FORMA EFFECT OF OLD WMI EQUITY OFFERING ON RESULTS OF OPERATIONS
As previously discussed, in order for the Merger to qualify as a pooling of
interests, approximately 20 million shares of Old WMI Common Stock must be
issued to reverse certain share repurchases effected by Old WMI, Assuming that
20 million shares were issued at an offering price of $32 per share and net
issuance costs of 4 per cent., net proceeds to Old WMI would be $614,400,000.
The proceeds from the sale of stock, after payment of dividends on such stock
based on the historical dividend rate, are assumed to be used to reduce
outstanding indebtedness at an average borrowing rate of 6 per cent. The
applicable tax rate is assumed to be 42 per cent. The following table
summarizes the pro forma effect of the equity offering as if the offering has
occurred at the beginning of the periods presented in the Combined Unaudited
Pro Forma Condensed Statements of Operations:
59
Three Months
Year Ended 31 December Ended 31 March
----------------------------- --------------
1995 1996 1997 1998
-------- -------- ----------- --------------
(In thousands, except per share amounts)
Pro forma income (loss) from
continuing operations $496,927 $291,453 $(1,029,977) $179,272
Decrease in interest expense as
a result of equity offering,
net of tax benefit 20,964 20,943 20,915 5,316
-------- -------- ----------- --------
Pro forma income (loss) from
continuing operations after
equity offering $517,891 $312,396 $(1,009,062) $184,588
======== ======== =========== ========
Pro forma basic earnings per
common share from continuing
operations after equity
offering $ 1.02 $ 0.58 $ (1.80) $ 0.33
======== ======== =========== ========
Pro forma diluted earnings per
common share from continuing
operations after equity
offering $ 1.00 $ 0.57 $ (1.80) $ 0.32
======== ======== =========== ========
Weighted average number of
common shares outstanding after
equity offering 509,722 543,142 561,032 563,646
======== ======== =========== ========
Weighted average number of
common and potential dilutive
shares outstanding after equity
offering 527,801 552,451 561,032 588,840
======== ======== =========== ========
60
PART 5
TERMS AND CONDITIONS
The Proposal is conditional upon the Scheme becoming unconditional and
becoming effective by not later than 31 December 1998 or such later date as
the Company and WMII may agree and the Court may approve.
1. The Scheme will become effective following:
(a) the approval by a majority in number, representing 75 per cent. in value,
of the Scheme Shares held by those present and voting, either in person or
by proxy, at the Court Meeting or at any adjournment thereof;
(b) the special resolution set out on pages 80 to 81 of this document being
passed at the Extraordinary General Meeting or at any adjournment thereof;
(c) The Scheme being sanctioned by the Court, with or without modification as
provided for in the Scheme, and confirmation of the reduction of capital
involved therein by the Court, and an office copy of the order of the
Court being delivered for registration to the Registrar of Companies in
England and Wales (and registered by him in relation to the reduction of
capital).
2. The Company and WMII have agreed that, subject as stated in paragraph 3
below, the Proposal will also be conditional upon the following conditions
being satisfied or waived and, accordingly, the necessary action to make the
Scheme effective will not be taken unless such conditions have been so
satisfied or waived by WMII:
(a) no government or governmental, quasi-governmental, supranational,
statutory or regulatory body, trade agency, court or other body or person
in any jurisdiction having instituted, implemented or threatened any
action, proceedings, suit, investigation or enquiry, or having enacted,
made or proposed any statute, regulation or order or taken any measures or
other steps, that would or might make the Scheme or any part of it or the
issue of the Transaction Statement, void, unenforceable or illegal, or
directly or indirectly restrain, restrict, prohibit, delay or otherwise
interfere in a material way with the implementation of, or impose material
additional conditions or obligations with respect to, or otherwise
challenge or in a material way hinder, the Scheme or any part of it or the
Transaction Statement, or (save as fairly disclosed to Old WMI or any of
its subsidiaries other than any member of the Group prior to 29 June 1998)
otherwise materially and adversely affect the business, profits or
prospects of the Group taken as a whole;
(b) all authorisations, orders, grants, recognitions, confirmations, consents,
clearances, permissions and approvals ("authorisations") and
determinations which are material in the context of the Group taken as a
whole or the Scheme necessary or appropriate in any jurisdiction for or in
respect of the Scheme and each part of it being obtained in terms and in a
form reasonably satisfactory to WMII from any persons or bodies
(including, without limitation, any government or governmental, quasi-
governmental, supranational, statutory or regulatory body, trade agency or
court) with whom any member of the Group has entered into contractual
arrangements (other than any such authorisation or determination required
only from Old WMI or any company controlled in relation to any such
authorisation or determination by Old WMI, if any) and such authorisations
and determinations together with all authorisations and determinations
(other than any such authorisation or determination required only from Old
WMI or any company controlled in relation to any such authorisation or
determination by Old WMI, if any) which are material in the context of the
Group taken as a whole or the Scheme necessary or appropriate for any
member of the Group to carry on its business remaining in full force and
effect and there being no indication of any intention to revoke, suspend,
restrict, modify or not renew any of the same and all appropriate waiting
periods under any applicable legislation and regulations in any
jurisdiction which are material in the context of the Group taken as a
whole or the Scheme and all necessary statutory or regulatory obligations
in any jurisdiction which are material in the context of the Group taken
as a whole or the Scheme having been complied with;
61
(c) there being no provision of any arrangement, agreement, licence or other
instrument to which any member of the Group is a party or by or to which
any member of the Group or any part of its assets may be bound, entitled
or subject which would or might, as a result of the Scheme or any part of
it, to an extent which is material in the context of the Group taken as a
whole or the Scheme, result in (i) any moneys borrowed or other
indebtedness (actual or contingent) of any member of the Group being or
becoming repayable or capable of being declared repayable prior to its
stated maturity or the ability of any such member to borrow moneys or
incur any indebtedness being withdrawn or inhibited; (ii) any such
arrangement, agreement, licence or instrument being breached, terminated
or materially modified or any onerous obligation or liability arising or
any material action being taken or right to take the same arising
thereunder; or (iii) the interests of any member of the Group with any
person under any such arrangement, agreement, licence or instrument or the
interests or business of any such member in or with any other person or
body (or any arrangements relating to such interests or business) being
terminated, modified or materially adversely affected or any right to so
terminate, modify or affect arising, and there being no indication of any
intention to so terminate, modify or affect; or (iv) the respective
financial or trading position or prospects of any such member being
prejudiced or adversely affected; and
(d) since 31 March 1998 and save for any matter fairly disclosed to Old WMI or
any of its subsidiaries other than any member of the Group prior to 29
June 1998 (i) no adverse change or deterioration having occurred in the
business, assets, financial or trading position or profits or prospects of
the Company or any other member of the Group which is material in the
context of the Group taken as a whole; (ii) no litigation or arbitration,
prosecution or other legal proceedings having been instituted or
threatened by or against or otherwise involving any member of the Group
and no investigation by any relevant authority against or in respect of
any member of the Group having been threatened in writing, announced or
instituted or remaining outstanding by, against or in respect of any such
member and which in any such case might materially and adversely affect
the Group taken as a whole; and (iii) no contingent or other liability
having arisen which is likely materially and adversely to affect the Group
taken as a whole.
3. WMII reserves the right, in its absolute discretion, to waive all or any of
the conditions in paragraph 2 above, in whole or in part.
WMII shall be under no obligation to waive or treat as fulfilled any of the
above conditions by a date earlier than the latest date specified above for
the fulfilment thereof notwithstanding that any such condition or the other
conditions of the Proposal may at such earlier date have been fulfilled and
that there are at such earlier date no circumstances indicating that any of
such conditions may not be capable of fulfilment.
The Scheme will comply with the requirements of the Code (so far as
applicable.)
62
PART 6
TAXATION INFORMATION FOR UK AND US HOLDERS OF ORDINARY SHARES OR ADRS
1. UNITED KINGDOM TAXATION
The following paragraphs, which are intended as a general guide only, are
based on current legislation and Inland Revenue practice. They summarise
certain limited aspects of the UK taxation treatment of the Scheme, as they
relate (except insofar as express reference is made to the treatment of non-UK
residents) to the holders of Scheme Shares who are the beneficial owners of
their Scheme Shares, who hold their Scheme Shares as an investment, and who
are resident in the UK for tax purposes. SHAREHOLDERS WHO ARE IN ANY DOUBT AS
TO THEIR TAXATION POSITION OR WHO ARE SUBJECT TO TAXATION IN ANY JURISDICTION
OTHER THAN THE UK, SHOULD CONSULT AN APPROPRIATE PROFESSIONAL ADVISER.
(A) TAXATION OF CHARGEABLE GAINS
Liability to UK taxation on chargeable gains ("CGT") will depend on the
particular circumstances of holders of Scheme Shares. The receipt by a holder
of Scheme Shares of cash pursuant to the Scheme, will constitute a disposal of
his Scheme Shares for CGT purposes. Such a disposal may, depending on that
shareholder's individual circumstances, give rise to a liability to CGT.
Shareholders whose base cost for UK capital gains purposes, ignoring
indexation, exceeds the consideration received will realise an allowable loss
which can be set against chargeable gains of that Shareholder in the same or
any later tax year.
Non-resident holders of Scheme Shares or ADRs
Holders of Scheme Shares or ADRs who are not resident or ordinarily resident
for tax purposes in the UK may be liable for UK tax on capital gains realised
on the disposal of their Scheme Shares or ADRs if such securities are used,
held or acquired for the purpose of a trade, profession or vocation carried on
in the UK through a branch or agency or for the purposes of such branch or
agency. Such holders may be subject to foreign taxation on any gain under
local law.
Such holders should also note that if they have earlier been UK resident for
tax purposes and their disposal of Scheme Shares or ADRs is of shares or ADRs
that they held when they ceased to be a UK resident, and they then resume
residence in the UK within five years of the year of their departure, gains or
losses arising on the disposal of the Scheme Shares or ADRs during the period
of non-residence will be treated as accruing in the year of resumption of
residence in the UK (thereby being potentially taxable or allowable).
(B) SHARES ACQUIRED UNDER SHARE OPTION PLANS
Special tax provisions may apply to holders of Scheme Shares who have acquired
or acquire their Scheme Shares by exercising options under the Share Option
Plans, including provisions imposing a charge to income tax.
(C) STAMP DUTY AND STAMP DUTY RESERVE TAX ("SDRT")
No stamp duty or SDRT will be payable by holders of Scheme Shares as a result
of the Scheme.
2. UNITED STATES FEDERAL INCOME TAXATION
(A) U.S. HOLDERS
The following paragraphs address certain United States federal income tax
consequences applicable to Scheme Shareholders and ADR holders that are U.S.
Holders. The term "U.S. Holder" means a beneficial owner of Scheme Shares or
ADRs that is for U.S. federal income tax purposes (i) a citizen or resident of
the United States, (ii) a corporation, partnership or other entity created or
organized under the laws of the U.S. or any political subdivision thereof or
therein, (iii) any estate or trust defined in Section 7701(a)(30) of the
Internal Revenue Code of 1986, as amended (the "IRC"), or (iv) a person whose
worldwide income or gain is otherwise taxable
63
in the United States on a net income basis. This summary is based on the IRC,
administrative pronouncements, judicial decisions and regulations, changes to
any of which (which may be retroactive) may affect the tax consequences
described herein. This summary assumes that the Scheme Shares and ADRs have
been held as capital assets. It does not address the tax treatment of
individuals who have received Scheme Shares and ADRs in connection with
employment such as by the exercise of options granted to employees, and it is
not addressed to holders owning at least 10 per cent. (after applying the
constructive ownership rules of Section 958(b) of the IRC) of the voting power
of the Company. This summary also assumes that the Company is not and has
never been a passive foreign investment company for US federal income tax
purposes. This summary does not discuss all tax consequences that may be
relevant to a U.S. Holder of Scheme Shares or ADRs in the light of such
holder's particular circumstances or to holders subject to special rules, such
as certain financial institutions, regulated investment companies, insurance
companies, dealers in securities, exempt organizations, U.S. Holders whose
functional currency is not the United States dollar or U.S. Holders engaged in
straddle or "hedging" transactions.
The cancellation by a U.S. Holder of ADRs so that they become Ordinary Shares
is not a taxable event.
In general, a U.S. Holder of Scheme Shares or ADRs will, for United States
federal income tax purposes, recognize a gain or loss equal to the difference
between such holder's adjusted tax basis in the Scheme Shares or ADRs
cancelled and the amount of cash received in exchange therefor. Such gain or
loss will generally be capital gain or loss. In general, any capital loss
would be currently deductible only to the extent of the holder's capital gains
plus, in the case of a non-corporate holder, ordinary income of up to $3,000
(assuming a joint tax return is filed). A corporation may carryback unused
capital losses to the preceding three years and carryforward unused capital
losses to the next five years; an individual may carryforward such losses
indefinitely. In addition, an accrual basis holder of Scheme Shares or ADRs
that does not elect to be treated as a cash basis taxpayer pursuant to the
foreign currency exchange regulations may have a foreign currency exchange
gain or loss for United States federal income tax purposes because of
differences between the US dollars/pounds sterling exchange rates prevailing
on the Effective Date and on the date of payment. Any such currency gain or
loss would be treated as ordinary income or loss and would be in addition to
the gain or loss realised by the holder as a result of the Scheme.
(B) NON-U.S. HOLDERS
Any gain realised by a person other than a U.S. Holder (a "Non-U.S. Holder")
on the sale of Scheme Shares or ADRs generally will not be subject to U.S.
federal income taxation, unless (i) such gain is effectively connected with
the conduct by the Non-U.S. Holder of a U.S. trade or business, (ii) the Non-
U.S. Holder is present in the U.S. for 183 days or more in the year of
disposition and certain other requirements are met, or (iii) the Non-U.S.
Holder is subject to U.S. tax law provisions applicable to certain U.S.
expatriates.
The foregoing discussion is for general information only and is intended to be
a summary of the principal United States federal income tax considerations of
the Proposal. EACH UNITED STATES HOLDER SHOULD CONSULT HIS OR HER OWN TAX
ADVISER CONCERNING THE UNITED STATES FEDERAL AND APPLICABLE STATE, LOCAL,
FOREIGN AND OTHER TAX CONSEQUENCES OF THE PROPOSAL.
64
PART 7
ADDITIONAL INFORMATION
1. RESPONSIBILITY
With the exception of the expressions of opinion and the recommendation of the
Independent Directors contained in the letter from Sir William Barlow set out
on pages 7 to 10 (for which the Independent Directors alone accept
responsibility) the Directors, whose names are set out below, accept
responsibility for the information contained in this document relating to the
Company, the Directors and their immediate families. To the best of the
knowledge and belief of the Directors (each of whom has taken all reasonable
care to ensure that such is the case) the information contained in this
document for which they accept responsibility is in accordance with the facts
and does not omit anything likely to affect the import of such information.
The officers and directors of WMI, whose names are set out below, accept
responsibility for the information contained in this document (other than that
relating to the Company, the Directors and their immediate families). To the
best of the knowledge and belief of such members (each of whom has taken all
reasonable care to ensure that such is the case) the information contained in
this document for which they accept responsibility is in accordance with the
facts and does not omit anything likely to affect the import of such
information.
2. DIRECTORS AND OFFICERS
(A) The names of the Directors and their functions are set out below:
EXECUTIVE DIRECTORS FUNCTION
Edwin G.
Falkman Chairman
Bo G.A.
Gabrielson Chief Executive
Peter B.
Dessing Finance Director
Donald F. Flynn
Joseph M.
Holsten
Robert "Steve'
Miller
NON-EXECUTIVE
Sir William
Barlow
Jan Ekman
Giorgio Porta
Dr. Manfred
Scholz
(B) The officers and directors of WMI who comprise the executive committee of
the board of WMI and their functions are set out below:
DIRECTORS FUNCTION
Robert "Steve'
Miller Chairman
John Drury Chief Executive Officer
Earl DeFrates Chief Financial Officer
Donald Chappell Senior Vice President, Operations/Administration
Rodney Proto President and Chief Operating Officer
Gregory
Sangalis Senior Vice President, General Counsel and Secretary
65
3.MARKET QUOTATIONS
The following table sets out the middle market quotation for Ordinary Shares
as derived from the London Stock Exchange Daily Official List for the first
dealing day for each of the six months immediately prior to the date of this
document, on 26 June 1998 (being the last dealing day prior to the
announcement of the Proposal) and on . September 1998 (being the latest
practicable date prior to the posting of this document):
Pence
2 March 1998 183.5p
1 April 1998 227.5p
1 May 1998 228.0p
1 June 1998 242.0p
26 June 1998 247.5p
1 July 1998 329.0p
3 August 1998 331.0p
. September 1998 . p
. September 1998 . p
4. DISCLOSURE OF INTERESTS AND DEALINGS
(A) For the purposes of this paragraph 4, "disclosure period" means the period
commencing on 29 June 1997 (being the date 12 months prior to the date on
which the Proposal was announced) and ending on . September 1998 (being
the latest practicable date prior to the posting of this document) and
"offer disclosure period" means the period commencing on 29 June 1998
(being the date on which the Proposal was announced) and ending on .
September 1998 (being the latest practicable date prior to the posting of
this document).
References in this paragraph 4 to:
(i) "relevant securities" are to Ordinary Shares and securities convertible
into, rights to subscribe for, options (including traded options) in
respect of and derivatives referenced to, Ordinary Shares;
(ii) an "associate" are to:
(a) subsidiaries and associated companies of WMI or the Company and
companies of which any such subsidiaries or associated companies
are associated companies;
(b) banks and financial and other professional advisers (including
stockbrokers) to any company covered in (ii)(a) above, including
persons controlling, controlled by or under the same control as,
such banks or financial or other professional advisers;
(c) the directors of any company covered in (ii)(a) above (together in
each case with their close relatives and related trusts); and
(d) the pension funds of any company covered in (ii)(a) above.
Ownership or control of 20 per cent. or more of the equity share
capital of a company is regarded as the test of associated company
status and "control" means a holding, or aggregate holdings, of shares
carrying 30 per cent. or more of the voting rights attributable to the
share capital of the company which are currently exercisable at a
general meeting, irrespective of whether the holding gives de facto
control.
(iii) a "bank" does not apply to a bank whose sole relationship with any
company covered in (ii)(a) above is the provision of normal commercial
banking services or such activities in connection with the Proposal as
confirming that cash is available, handling acceptances and other
registration work; and
66
(iv) "arrangement" includes any indemnity or option arrangement and any
agreement or understanding, formal or informal, of whatever nature
which may be an inducement to deal or refrain from dealing.
(B) In the Company
(i) As at . September 1998 (the latest practicable date prior to the
posting of this document), the interests of the Directors in the share
capital of the Company (all of which are beneficial unless otherwise
stated) and as shown in the register required to be kept under section
325 of the Act, were as follows:
Exercise
Number of Number of price per Original
Ordinary Ordinary Shares Ordinary exercise period
Shares subject to option Date of grant Share (p) (from--to)
--------- ----------------- ------------- --------- ---------------
Sir William Bar-
low 3,100 25,000 18 Mar 92 526.5 Mar 93--Mar 99
P.B. Dessing (see
also the addi-
tional
options in the
Table below) 14,000 100,000 10 Mar 97 234.0 Mar 98--Mar 04
100,000 16 Mar 98 201.9 Mar 99--Mar 05
J. Ekman -- 25,000 31 Mar 92 526.5 Mar 93--Mar 02
E.G. Falkman 5,000 300,000 31 Mar 92 526.5 Mar 93--Mar 99
143,397 27 Apr 93 588.4 Apr 94--Apr 00
140,625 26 Apr 94 536.6 Apr 95--Apr 01
155,000 25 Apr 95 261.8 Apr 96--Apr 02
160,000 1 May 96 365.0 May 97--May 03
200,000 10 Mar 97 234.0 Mar 98--Mar 04
200,000 16 Mar 98 201.9 Mar 99--Mar 05
D.F. Flynn 100,000 200,000 31 Mar 92 526.5 Mar 93--Mar 02
B.G. Gabrielson 7,100 25,000 31 Mar 92 526.5 Mar 93--Mar 99
28,042 27 Apr 93 588.4 Apr 94--Apr 00
42,188 26 Apr 94 536.6 Apr 95--Apr 01
46,500 25 Apr 95 261.8 Apr 96--Apr 02
15,000 25 Jul 95 296.0 Jul 96--Jul 02
80,000 1 May 96 365.0 May 97--May 03
200,000 10 Mar 97 234.0 Mar 98--Mar 04
200,000 16 Mar 98 201.9 Mar 99--Mar 05
J.M. Holsten 2,000 100,000 31 Mar 92 526.5 Mar 93--Mar 99
60,000 27 Apr 93 588.4 Apr 94--Apr 00
140,000 25 Jul 95 296.0 Jul 96--Jul 02
160,000 1 May 96 365.0 May 97--May 03
G. Porta -- 25,000 31 Mar 92 526.5 Mar 93--Mar 02
Dr. M. Scholz -- 25,000 27 Apr 93 588.4 Apr 94--Apr 03
As a result of the Merger, options (including the additional options of
P.B. Dessing referred to below) which were granted before 16 March 1998
became exercisable on 16 July 1998 (if their exercise period had not
yet commenced) and will lapse if they have not been exercised by 16
July 1999, and a holder of such options acquired the right to exchange
his options for a cash sum per option equal to the difference between
(a) the average price of the Ordinary Shares for the five trading days
preceding the date on which the right is exercised (or, if higher,
329.4p) and (b) the exercise price of the option. Options granted on or
after 16 March 1998 are unaffected by these changes.
67
Prior to his relocation to the London office of the Company, Mr Dessing
was employed by Waste Management Nederland BV in the Netherlands. He was
granted options over Ordinary Shares pursuant to an Annex to the Waste
Management International plc Share Option Plan approved by the Share
Option and Compensation Committee on 25 April 1995. With respect to such
options, Waste Management Nederland BV lent Mr Dessing a total of NLG
78,944 (approximately (Pounds)23,600) to facilitate his purchase of the
options as they vested. The relevant amount will be repaid to the
company at the time the options are exercised. No interest is levied by
the company with respect to this loan. Details of these options are as
follows:
Number of Ordinary Exercise price per
Date of Grant Shares subject to option Original exercise period (from -- to) Ordinary Share (p)
------------- ------------------------ ------------------------------------- ------------------
31 March 1992 25,000 Tranche 1: Mar 93--Mar 98 lapsed
Tranche 2: Mar 94--Mar 99 539.0
Tranche 3: Mar 95--Mar 00 262.4
27 April 1993 20,000 Tranche 1: Apr 94--Apr 99 538.0
Tranche 2: Apr 95--Apr 00 260.4
Tranche 3: Apr 96--Apr 01 359.2
26 April 1994 20,000 Tranche 1: Apr 95--Apr 00 261.8
Tranche 2: Apr 96--Apr 01 356.0
Tranche 3: Apr 97--Apr 02 240.2
25 April 1995 20,000 Tranche 1: Apr 96--Apr 01 350.6
Tranche 2: Apr 97--Apr 02 237.7
Tranche 3: Apr 98--Apr 03 228.2
1 May 1996 25,000 Tranche 1: May 97--May 02 244.7
Tranche 2: May 98--May 03 228.0
Tranche 3: May 99--May 04 329.4
(ii) The following Directors have dealt for value in Ordinary Shares during
the disclosure period.
Nature of Number of Number of
Date Transaction Shares ADRs Price
--------- ----------- --------- --------- ------------
P.B.
Dessing 5 Nov 97 Purchase -- 2,000 US$6.63
16 Mar 98 Purchase -- 2,100 US$7.25
1 Apr 98 Purchase -- 2,900 US$7.25
B.G.
Gabrielson 13 Nov 97 Purchase 3,000 -- (Pounds)2.21
(iii) As at . September 1998 (the latest practicable date prior to the
posting of this document), the WMI Group was beneficially interested
in 300,000,000 Ordinary Shares.
(iv) As at . September 1998 (the latest practicable date prior to the
posting of this document), the interests of the directors of WMI and
the directors of WMII in the share capital of the Company (all of
which are beneficial unless otherwise stated), were as follows:
[SKADDEN ARPS TO SUPPLY]
(v) Save as disclosed in this paragraph 4, none of the Directors or the
directors of WMI or of WMII, or any member of their immediate families
or related trusts owns, controls or is interested in any relevant
securities, nor has any such person dealt for value therein during the
disclosure period.
(vi) Save as disclosed in this paragraph 4, neither:
(a) WMI or WMII; nor
(b) any person acting in concert with WMI or WMII; nor
68
(c) any subsidiary of the Company, nor any pension fund of any member
of the Group, nor any bank or financial or other professional
adviser of the Company (including stockbrokers but excluding exempt
market-makers) including any person controlling, controlled by or
under the same control as any such bank or financial or other
professional adviser; nor
(d) any discretionary fund manager (other than an exempt fund manager)
connected with the Company;
owns or controls any relevant securities, nor has any such person as is
mentioned in sub-paragraph (vi)(a) or (b) above dealt for value therein
during the disclosure period, nor has any such person as is mentioned
in sub-paragraph (vi)(c) or (d) above dealt for value therein during
the offer disclosure period.
(vii) Save as disclosed in this paragraph 4, neither WMI or WMII nor any
person acting in concert with WMI or WMII nor the Company nor any
associate of the Company, has any arrangement in relation to
relevant securities.
(C) In WMI
(i) As at . September 1998 (the latest practicable date prior to the
posting of this document), the interests in the share capital of WMI of
the Directors (all of which are beneficial unless otherwise stated) and
as showing the register required to be kept under section 325 of the
Act, were as follows:
Number of
Number of shares of
shares of common stock Exercise price
common stock of WMI subject per share Exercise period
Director of WMI to option Date of grant (US$) (from-to)
-------- ------------ -------------- ------------- -------------- ---------------
Sir William Barlow 652 -- -- -- --
P.B. Dessing -- 1,132 . Jul 90 57.42 . - . Jul 00
2,872 . Jan 91 48.88 . - . Jan 01
E.G. Falkman 18,849 8,049 . Jan 90 48.45 . - . Jan 00
9,206 . Jan 91 48.88 . - . Jan 01
9,179 . Apr 95 37.59 . - . Apr 05
D.F. Flynn 368,479 -- -- -- --
J.M. Holsten 45,838 4,179 . Jan 90 48.45 . - . Jan 00
4,603 . Jan 91 48.88 . - . Jan 01
8,135 . Mar 93 41.21 . - . Mar 03
8,626 . Jan 94 36.52 . - . Jan 04
25,940 . Apr 95 37.59 . - . Apr 05
9,608 . Apr 96 43.72 . - . Apr 06
48,253 . May 97 41.45 . - . May 07
72,500 . Jun 97 46.60 . - . Jun 07
77,293 . Mar 98 33.64 . - . Mar 08
R.S. Miller 2,575 2,175 . May 97 41.45 . - . May 07
54,375 . Nov 97 32.24 . - . Nov 07
160,533 . Mar 98 33.64 . - . Mar 08
(ii) Save as disclosed above, neither the Company nor any of the Directors
or any person connected with them owns, controls or is interested in
any shares of WMI or in any securities convertible into, rights to
subscribe for, or options in respect thereof, nor has any such person
dealt for value therein during the disclosure period.
(D) Substantial shareholdings
Save for the WMI Group as disclosed in paragraph 4 (B)(iii) above, the
Company is not aware of any person who is interested, directly or
indirectly, in three per cent. or more of the Company's issued share
capital.
69
5. DIRECTORS' SERVICE CONTRACTS
(A) E.G. Falkman and B.G.A. Gabrielson each have service contracts which
may terminate on three years' notice. Pursuant to a liquidated damages
clause which was negotiated with each of the Directors in January 1998,
however, the Company's liability for severance pay is capped at two
years salary plus non-discretionary bonuses and benefits.
(B) Mr. Dessing has a service contract with a subsidiary of WMI which
provides for severance terms identical to those granted to Messrs.
Falkman and Gabrielson. In the event of termination of Mr. Dessing's
employment, the Company would be liable to reimburse such subsidiary of
WMI for any amounts paid.
Save as disclosed above, there are no service contracts between any
current or proposed Director and any member of the Group having more
than twelve months to run and no such contract has been entered into or
amended within the six months preceding the date of this document.
6. MATERIAL CONTRACTS
(A) The Company
The following contracts, which are or may be material, not being contracts
entered into in the ordinary course of business, have been entered into by
the Group since 29 June 1996 (being two years prior to the date on which
the Proposal was announced):
(a)Amendment of Wessex Waste Management Limited Shareholder Agreement
Under an agreement dated 18 December 1996 between Waste Management
International B.V. ("BV"), the Company, UK Waste Management Holdings
("UKWMH"), Wessex and Wessex Waste Management Limited ("WWM") certain
agreements between the Company and Wessex relating either to the
Company's investment in Wessex or the ownership of WWM were amended or
terminated.
The parties to the agreement also agreed in principle on the terms
under which Wessex would purchase certain of its shares held by the
Company. This transaction is more fully described in item (b) below.
The agreement also permitted the Company to sell on the market the
remaining shares in Wessex not being repurchased by Wessex. Such shares
were subsequently sold for a total consideration of approximately
(Pounds)23 million.
In addition, the agreement provided for the termination of the
Standstill Agreement between Wessex and UKWMH dated 28 February 1991
(as amended) under which UKWMH was prohibited from acquiring more than
25 per cent. of Wessex or selling any Wessex shares without the
approval of Wessex. The agreement also terminated the Option Instrument
pursuant to which the Company had been issued with certain options to
acquire additional shares in Wessex. As a result of this termination,
the Company's options to acquire 10,605,303 ordinary shares in Wessex
were cancelled.
Finally, the agreement amended the Shareholders' Agreement between BV,
the Company, Wessex and WWM dated 30 January 1991 (as amended) (the
"Shareholders' Agreement") such that, among other things, the right of
Wessex to put its interest in WWM to the Company was deferred until
after 28 February 1998 and the price at which such interest would be
sold was amended to reflect fair market value of WWM.
The Shareholders' Agreement provides that under certain circumstances
generally involving an offer being made for all of the outstanding
shares of Old WMI, Wessex has a right to purchase the Group's joint
venture interest in WWM for the then fair market value. Following
completion of the Merger, the Company received notice from Wessex that
the Merger constituted an "Event of Default" under the
70
Shareholders' Agreement. Wessex's notice does not indicate an intention
to exercise such right and Wessex has publicly stated that it has not
decided whether to exercise such right. In 1997, the Group had turnover
of (Pounds)167.8 million and operating profit (before minority
interest) of (Pounds)21.9 million from the joint venture. The Group's
carrying value (including goodwill) was (Pounds)212.6 million as of 31
December 1997. At this time, it is impossible to determine whether such
a transaction would result in a gain or a loss because the price for
such a sale is currently unknown.
The Shareholders' Agreement grants a similar right to the Company to
acquire Wessex's interest in WWM in the event of a change of control of
Wessex. On 24 July 1998, the board of Wessex announced the terms of a
recommended offer for all the issued shares of Wessex by Enron Corp. If
such a transaction occurs, the Company would have the right to acquire
Wessex's 49 per cent. interest in WWM for its then fair market value.
(b)Sale of investment in Wessex
Under the terms of a Share Purchase Agreement dated 14 February 1997
between UKWMH, the Company and Wessex, Wessex agreed to redeem
approximately 87 per cent. of the Company's 19.5 per cent. interest in
Wessex's share capital for a total consideration of (Pounds)157 million
in cash. The following shares were purchased by Wessex:
(i) 722,771 of the 7,227,709 ordinary shares held by the Company;
(ii) 30,225,106 "B" ordinary shares; and
(iii) 13,285,088 "C" ordinary shares.
In the case of the "B" and "C" ordinary shares, the number purchased by
Wessex reflected the total holding of such shares held by the Company.
(c)Sale of operations in France and Spain
Under an agreement dated 23 June 1997, the Company sold substantially
all of its remaining operations in France to SITA S.A. for FF270
million in cash plus deferred consideration consisting of cash and
notes to be paid over a five year period. The transaction resulted in
no gain or loss to the Company on a consolidated basis. On 30 September
1997, the Company sold the notes received in the transaction for an
aggregate price of FF311 million. Under an agreement dated 31 July
1997, the Company sold its 60 per cent. interest in Ingenieria Urbana,
S.A. to Segema Servicios Generales de Medio Ambiente, S.A ("SEGEMA")
for a cash purchase price of Pta 2.515 billion. SEGEMA is an affiliate
of SITA S.A.
(d)Sale of German waste-to-energy facility
Under an agreement dated 9 April 1997 between the Company and VEW AG (a
German energy utility), VEW AG was granted an option to purchase the
Company's waste-to-energy plant located in Hamm, Germany for DM245
million. In addition, the Company had the right to require VEW to
purchase the facility for a price of DM210 million. The agreement was
structured as an option to enable VEW to work with the City of Hamm,
the principal supplier of waste to the plant, to modify the terms of
the existing waste supply agreement.
On 22 December 1997, a subsidiary of VEW AG formally exercised the
option to purchase the Hamm facility. The sale was completed on 2
January 1998. The sale of the facility resulted in no significant gain
or loss to the Company.
71
(B) WMI
The following contracts, which are or may be material, not being contracts
entered into in the ordinary course of business have been entered into by
the WMI Group (excluding the Group) since 29 June 1996 (being two years
prior to the date of which the Proposal was announced):
(a)Merger between Old WMI and WTI
On 8 December 1997, Old WMI and WTI entered into a definitive merger
agreement pursuant to which, upon consummation of the merger, Old WMI
would become the holder of all the outstanding equity securities of WTI
and all the outstanding common stock of WTI held by stockholders other
than Old WMI and its affiliates (other than common stock held by public
stockholders who perfected their dissenters' appraisal rights) would be
converted into the right to receive $16.50 in cash per share of common
stock.
(b)Merger between Old WMI and WMI
On 10 March 1998, Old WMI entered into a definitive merger agreement
with WMI (then known as USA Waste Services, Inc.) relating to the
Merger which provided, subject to the satisfaction of the conditions
contained therein, that Old WMI would be merged with and into a wholly
owned subsidiary of WMI and that upon consummation of the Merger, Old
WMI's shareholders would receive 0.725 shares of WMI's common stock for
each share of Old WMI common stock held immediately prior to the
Merger. On 16 July 1998, the Merger was consummated. Upon consummation
of the Merger, Old WMI became a wholly owned subsidiary of WMI and
changed its name to Waste Management Holdings, Inc.
7.LITIGATION
In June 1998, an alleged holder of ADRs filed a putative class action
complaint in the Circuit Court of Cook County, Chicago, Illinois, naming Old
WMI, the Company and several directors of the Company as defendants. The
complaint seeks to enjoin the completion of the Scheme or, in the alternative,
rescission or compensatory damages in the event the Scheme is completed. Among
other things, the complaint asserts that the completion of the Scheme will
constitute a breach of defendants' fiduciary duties to the holders of ADRs
and, if the Scheme is completed, the holders of ADRs will be denied a proper
premium for their ADRs. WMI, on behalf of Old WMI, the Company and the named
directors intend to contest this litigation vigorously.
In July 1998, a putative class of alleged holders of Company Ordinary Shares
filed a complaint in the Circuit Court of Cook County, Chicago, Illinois,
naming Donald F. Flynn and Old WMI as defendants. The complaint seeks to
enjoin the completion of the Scheme or, in the alternative, rescission or
compensatory damages in the event the Scheme is completed. Among other things,
the complaint asserts that the completion of the Scheme will constitute a
breach of defendants' fiduciary duties to the shareholders of the Company (Mr.
Flynn is a director of the Company, and Old WMI is its controlling
shareholder) and that, if the Scheme is completed, the shareholders of the
Company will be denied a proper premium for their Ordinary Shares. WMI, on
behalf of Old WMI, and Mr. Flynn intend to contest this litigation vigorously.
8.FINANCING ARRANGEMENTS
(i) The Proposal will be financed from the WMI Group's existing resources and
facilities. Neither the payment of interest on, nor repayment of, nor
security for any liability (contingent or otherwise) of the WMI Group will
depend to any significant extent on the business of the Company.
(ii) Merrill Lynch is satisfied that the WMI Group has the necessary financial
resources available to it to satisfy full implementation of the Scheme.
72
9. MISCELLANEOUS
(A) There is no agreement, arrangement or understanding including any
compensation arrangement between (i) WMI, WMII or any person acting in
concert with WMI and WMII and (ii) any of the recent or current
Shareholders (other than members of the WMI Group) or any Director or
recent director of the Company having any connection with or dependence on
the Scheme.
(B) KPMG Corporate Finance is a division of KPMG which is authorised to carry
on investment business by the Institute of Chartered Accountants in
England and Wales. The principal place of business of KPMG Corporate
Finance is 8 Salisbury Square, London EC4Y 8BB, where a list of the
partners' names is open to inspection.
(C) Merrill Lynch is regulated in the UK by the Securities and Futures
Authority Limited and its registered office is at Ropemaker Place, 25
Ropemaker Street, London EC2Y 9LY.
(D) Each of KPMG Corporate Finance and Merrill Lynch has given and has not
withdrawn its written consent to the inclusion in this document of its
name in the form and context in which it is included.
(E) There is no agreement, arrangement or understanding whereby the beneficial
ownership of any of the Ordinary Shares to be acquired by WMII and/or its
nominee(s) following the implementation of the Scheme will be transferred
to any other person.
(F) Settlement of the consideration to which each Scheme Shareholder is
entitled under the Scheme will be implemented in full in accordance with
the terms of the Scheme without regard to any lien, right of set-off,
counter claim or other analogous right to which WMII may otherwise be, or
claim to be, entitled against such shareholder.
(G) The effect of the Scheme on the interests of the Directors does not differ
from its effect on the like interests of other persons.
(H) Each of the Directors intends to vote in favour of all resolutions on
which he is entitled to vote at the Meetings.
(I) Save as disclosed herein, there has been no material change in the
financial or trading position of WMI since 31 March 1998, the date as of
which the combined unaudited pro forma condensed financial statements of
WMI and Old WMI were prepared.
(J) Save as disclosed herein, there has been no material change in the
financial or trading position of the Company since 31 December 1997, the
date to which the latest published audited accounts of the Company were
prepared.
10. DOCUMENTS AVAILABLE FOR INSPECTION
Copies of the following documents will be available for inspection at the
offices of Slaughter and May, 35 Basinghall Street, London EC2V 5DB, during
usual business hours on any weekday (Saturdays excepted) until the Effective
Date or the date that the Scheme lapses, whichever is the earlier:
(A) the Memorandum and Articles of Association of the Company and the
equivalent constitutional documents of WMI;
(B) the audited consolidated accounts of WMI, Old WMI, and the Company for the
two years ended 31 December 1997;
(C) [the unaudited interim reports of WMI[, Old WMI] and of the Company for
the six months ended 30 June 1998;]
73
(D) the material contracts referred to in paragraph 6 above;
(E) the consents referred to in paragraph 9(D) above;
(F) the Transaction Statement;
(G) the Joint Proxy Statement/Prospectus dated 9 June 1998 in respect of the
Merger as filed with the US Securities and Exchange Commission and sent to
shareholders of Old WMI and USA Waste Services, Inc.; and
(H) the Directors' service contracts referred to in paragraph 5 above.
Dated . September 1998.
74
SCHEME OF ARRANGEMENT
IN THE HIGH COURT OF JUSTICE No. [ ] of 1998
CHANCERY DIVISION
COMPANIES COURT
IN THE MATTER OF
WASTE MANAGEMENT INTERNATIONAL plc
- and -
IN THE MATTER OF
THE COMPANIES ACT 1985
SCHEME OF ARRANGEMENT
(UNDER SECTION 425 OF THE COMPANIES ACT 1985)
BETWEEN:
WASTE MANAGEMENT INTERNATIONAL plc
- and -
THE HOLDERS OF THE SCHEME SHARES
(as hereinafter defined)
PRELIMINARY
(A) In this Scheme, unless inconsistent with the subject or context, the
following expressions shall bear the following meanings:
"CREST" a relevant system (as defined in the CREST
Regulations) in respect of which CRESTCo
Limited is the Operator (as defined in the
CREST Regulations)
"CREST Manual" the CREST manual referred to in the agreements
entered into by CRESTCo Limited
"CREST Regulations" the Uncertificated Securities Regulations 1995
(SI 1995 No. 3272)
"Dollar Election" the election under which Scheme Shareholders
may elect to receive all, but not part, of
their cash entitlement under the Scheme in US
dollars
"Dollar Exchange Rate" the mid-point spot rate for conversion of
pounds sterling into US dollars at 4.00 pm on
the Effective Date, as derived from the WM
Reuters page showing such rate
"Effective Date"
the day on which this Scheme becomes effective
in accordance with clause 5(A)
75
"Hearing Date" the date of the hearing by the Court of the
Petition to sanction this Scheme
"holder" includes any person entitled by transmission
"New Ordinary Shares" the "A" ordinary shares of 5p each in the
capital of the Company to be created in
accordance with clause 2(A) of this Scheme
"Ordinary Shares" ordinary shares of 10p each in the capital of
the Company
"Record Date" the business day immediately preceding the
Effective Date
"Relevant Holder" each person who appears as a holder of Scheme
Shares in the Register of Members of the
Company at 5.30 pm on the Record Date
"Scheme Shares" the Ordinary Shares in issue at the date of
this document, other than WMI Group Shares,
together with:
(i) any additional Ordinary Shares which may be
issued after the date of this document but
before 5.30 pm on the business day
immediately before the date of the meeting
of members of the Company convened by order
of the Court to consider the Scheme; and
(ii) any further Ordinary Shares which may be
issued after the period referred to in
paragraph (i) above but before 5.30 pm on
the business day immediately before the
Hearing Date and on terms that they are
bound by the Scheme
"uncertificated" or "in recorded on the relevant register as "in
uncertificated form" uncertificated form" being held in
uncertificated form in CREST and title to which
by virtue of the CREST Regulations may be
transferred by CREST
"the Company" Waste Management International plc, a company
registered in England and Wales under number
2669336
"WMI" Waste Management, Inc., a corporation organised
under the laws of the State of Delaware, United
States of America
"WMI Group" WMI and its subsidiaries (excluding the Company
and its subsidiaries)
"WMI Group Shares" those issued Ordinary Shares in which any
member of the WMI Group is beneficially
interested as at the date of this document
"WMII" Waste Management International, Inc., a
corporation organised under the laws of the
State of Delaware, United States of America
"this Scheme"
this Scheme in its present form or with any
modification, addition or condition approved or
imposed by the Court
76
(B) The authorised share capital of the Company is (Pounds)100,000,000 divided
into 1,000,000,000 Ordinary Shares each of 10p each of which 375,273,456
have been issued and are fully paid and the remainder are unissued.
(C) At the date hereof the WMI Group Shares number 300,000,000 Ordinary
Shares.
(D) WMII has agreed to appear by Counsel on the hearing of the petition to
sanction this Scheme and to undertake to the Court to be bound thereby and
to execute all documents and do all such acts and things as may be
necessary or desirable to be executed or done by it for the purpose of
giving effect to this Scheme.
THE SCHEME
1. The capital of the Company shall be reduced by cancelling and
extinguishing the Scheme Shares.
2. Forthwith and contingently upon the said reduction of capital taking
effect:
(A) the capital of the Company shall be increased to its former amount by
the creation of that number of New Ordinary Shares whose aggregate
nominal amount shall equal the amount of capital so cancelled; and
(B) the credit arising in the books of account of the Company as a result
of such reduction of capital shall be capitalised and applied in paying
up in full at par the New Ordinary Shares, which shall be allotted and
issued, credited as fully paid up, to WMII and/or its nominee(s).
3.(A) In consideration of the cancellation of the Scheme Shares and the issue
to WMII and/or its nominee(s) of the New Ordinary Shares, WMII shall
not later than 14 days after the Effective Date pay (i) to each
Relevant Holder who has not made a Dollar Election, the sum of 345p in
respect of each Scheme Share held by him at 5.30 pm on the Record Date
and (ii) to each Record Holder who has made a Dollar Election, the US
dollar equivalent of the sum of 345p in respect of each Scheme Share
held by him at 5.30 pm on the Record Date, such US dollar equivalent to
be calculated using the Dollar Exchange Rate. The aggregate US dollar
amount due under the Scheme to a Scheme Shareholder who has made a
Dollar Election shall be rounded down to the nearest whole cent.
(B) Elections to receive the Dollar Election shall be valid only by due
completion of the form of election sent to holders of Scheme Shares
with the Scheme and which form shall have been signed by the relevant
Scheme Shareholder or his duly authorised agent and, in the case of
joint holders, in like manner by or on behalf of such holders and shall
have been completed and returned in accordance with the instructions
thereon so as to arrive at Computershare Services PLC, PO Box 82,
Caxton House, Redcliffe Way, Bristol BS99 7YA, not later than 5.30 pm
on 2 November 1998.
(C) Not more than 14 days after the Effective Date WMII shall deliver, or
procure to be delivered, to each Relevant Holder holding Scheme Shares
in certificated form or who has made a Dollar Election a cheque for the
amount due to him by duly posting the same in a pre-paid envelope
addressed to him at his address as appearing in the register of members
of the Company at 5.30 pm on the Record Date and neither WMII nor the
Company shall be responsible for any loss or delay in transmission. In
the case of joint holders the cheque shall be made payable to, and
posted to the registered address of, the holder whose name appears
first in the register of members of the Company in respect of the joint
holding. The encashment of any such cheque shall be a complete
discharge to WMII for the money represented thereby.
(D) Not more than 14 days after the Effective Date, WMII shall arrange for
the creation of an assured payment obligation in accordance with the
CREST assured payment arrangements (as set out in the CREST Manual) in
favour of the payment bank of each Relevant Holder who holds Scheme
Shares in uncertificated form and who has not made a Dollar Election in
respect of the amount due to such
77
Relevant Holder, provided that WMII may (if, for any reason, it wishes
to do so) determine that all or part of the amounts due to Relevant
Holders who hold Scheme Shares in uncertificated form shall be paid by
cheque despatched by post in the manner provided by clause 3(C) of this
Scheme.
(E)The provisions of this clause shall be subject to any prohibition or
condition imposed by law.
4. As from and including the Effective Date, all certificates representing
holdings of Scheme Shares shall cease to be valid for any purpose and each
former holder of Scheme Shares shall be bound on request to deliver up to
the Company the certificate for his holding thereof.
5.(A) This Scheme shall become effective as soon as an office copy of the
Order of the Court sanctioning this Scheme under section 425 of the
Companies Act 1985 and confirming under section 137 of such Act the
reduction of the capital of the Company provided for by clause 1 of
this Scheme shall have been duly registered by the Registrar of
Companies.
(B) Unless the Scheme shall have become effective on or before 31 December
1998 or such later date, if any, as the Company and WMII may agree and
the Court may allow, this Scheme shall never become effective.
6. The Company and WMII may jointly consent, on behalf of all persons
affected, to modification of or addition to this Scheme, or to any
condition thereto, in each case approved or imposed by the Court.
Dated . September 1998
78
WASTE MANAGEMENT INTERNATIONAL PLC
NOTICE OF COURT MEETING
IN THE HIGH COURT OF JUSTICE No. [ ] of 1998
CHANCERY DIVISION
COMPANIES COURT
MR. REGISTRAR .
IN THE MATTER OF WASTE MANAGEMENT INTERNATIONAL plc
and
IN THE MATTER OF THE COMPANIES ACT 1985
NOTICE IS HEREBY GIVEN that, by an Order dated [ ] made in the above
matters, the Court has directed a Meeting to be convened of the holders of the
Scheme Shares (as defined in the Scheme of Arrangement hereinafter referred
to) for the purpose of considering and, if thought fit, approving (with or
without modification) a Scheme of Arrangement proposed to be made between
Waste Management International plc (the "Company") and the said holders of
Scheme Shares and that such Meeting be held at 10.00 am on 7 October 1998 at
the offices of Slaughter and May, 4 Coleman Street, London EC2V 5DB, at which
place and time all the said holders of the Scheme Shares are requested to
attend.
A copy of the said Scheme of Arrangement and a copy of the Statement required
to be furnished pursuant to section 426 of the above-mentioned Act are
incorporated in the document of which this Notice forms part.
THE SAID SHAREHOLDERS MAY VOTE IN PERSON AT THE SAID MEETING OR THEY MAY
APPOINT ANOTHER PERSON, WHETHER A MEMBER OF THE COMPANY OR NOT, AS THEIR PROXY
TO ATTEND AND VOTE IN THEIR STEAD.
A pink form of proxy for use at the Meeting is enclosed herewith.
In the case of joint holders, the vote of the senior who tenders a vote,
whether in person or by proxy, will be accepted to the exclusion of the votes
of the other joint holders and for this purpose seniority will be determined
by the order in which the names stand in the Register of Members of the
Company in respect of the joint holding.
It is requested that forms appointing proxies be lodged with the Company's
Registrar, Computershare Services PLC, Registrars Department, P.O. Box 82,
Caxton House, Redcliffe Way, Bristol BS99 7YA, not less than 48 hours before
the time appointed for the said Meeting, but if forms are not so lodged they
may be handed to the Chairman at the Meeting.
Entitlement to attend and vote at the Meeting and the number of votes which
may be cast thereat will be determined by reference to the register of members
of the Company at 5.30 pm on the day prior to the day immediately before the
meeting or any adjourned meeting (as the case may be). Changes to entries in
the register of members after that time will be disregarded in determining the
rights of any person to attend and vote at the Meeting.
By the said Order the Court has appointed Sir William Barlow or failing him
any other Independent Director to act as Chairman of the said Meeting and has
directed the Chairman to report the result thereof to the Court.
The said Scheme of Arrangement will be subject to the subsequent approval of
the Court.
Slaughter and May
35 Basinghall Street
London EC2V 5DB Dated . September 1998
79
WASTE MANAGEMENT INTERNATIONAL PLC
NOTICE OF EXTRAORDINARY GENERAL MEETING
NOTICE IS HEREBY GIVEN that an Extraordinary General Meeting of Waste
Management International plc (the "Company") will be held at 10.30 am on 7
October 1998 at the offices of Slaughter and May, 4 Coleman Street, London,
EC2V 5DB (or as soon thereafter as the Court Meeting (as such term is defined
in the document of which this Notice of Meeting forms part) shall have
concluded or been adjourned) for the purpose of considering and, if thought
fit, passing the following resolution which will be proposed as a special
resolution:
SPECIAL RESOLUTION
THAT:
(A) the scheme of arrangement dated . September 1998 (the "Scheme") between
the Company and the holders of the Scheme Shares (as defined in the
Scheme), (a print of which Scheme is set out in the document of which this
Notice of Meeting forms part and which for the purpose of identification
has been signed by the Chairman of this Meeting), be hereby approved;
(B) subject to the Scheme being duly approved by the said holders of the
Scheme Shares:
(i) for the purpose of giving effect to the Scheme, the capital of the
Company be reduced by cancelling and extinguishing all the Scheme
Shares;
(ii) forthwith and contingently upon the said reduction of capital taking
effect:
(a) the capital of the Company be increased to its former amount by
the creation of that number of new "A" ordinary shares of 5p each
whose aggregate nominal amount shall equal the amount of capital
so cancelled and which shall rank pari passu with the existing
ordinary shares; and
(b) the credit arising in the books of account of the Company as a
result of such reduction of capital be capitalised and applied in
paying up in full at par the said new ordinary shares, which shall
be allotted and issued, credited as fully paid up, to Waste
Management International, Inc. and/or its nominee(s);
(iii) the Board of Directors of the Company be and is hereby generally and
unconditionally authorised for the purpose of section 80 of the
Companies Act 1985 to exercise all powers of the Company to allot
new ordinary shares to Waste Management International, Inc. and/or
its nominee(s) up to an aggregate nominal amount of
(Pounds)50,000,000, such authority to expire on . September 2003;
and
(iv) the Articles of Association of the Company be amended by the adoption
of the following new Article 1(J):
"Scheme of Arrangement
1(J) (i) In this article references to the "Scheme" are to the scheme
of arrangement of the company dated . September 1998
proposed by the company under section 425 of the Companies
Act 1985 and expressions defined in the Scheme shall have the
same meanings when used in this article.
(ii) If any ordinary shares shall be allotted on or after .
October 1998 but before 5.30 pm on the business day immediately
preceding the Hearing Date such ordinary shares shall be
allotted and issued subject to the terms of the Scheme and
shall constitute Scheme Shares and the holders thereof shall be
bound by the Scheme accordingly.
80
(iii) If any ordinary shares shall be allotted after 5.30 pm on the
business day immediately preceding the Hearing Date such
ordinary shares shall be allotted and issued on terms that the
relevant allottees and any subsequent holders thereof shall be
obliged forthwith upon the written request of Waste Management
International, Inc. to transfer them to Waste Management
International, Inc. or its nominee(s) in consideration for the
payment by Waste Management International, Inc. to such
allottee or subsequent holder of 345p for each such ordinary
share.
(iv) In order to give effect to any transfer required by paragraph
(iii) above the company may appoint any person to execute and
deliver on behalf of the relevant allottee or subsequent holder
a form of transfer in favour of Waste Management International,
Inc. or its nominee(s) and a cheque in respect of the amount to
be paid to the relevant allottee or subsequent holder will be
despatched to such allottee or subsequent holder at his
registered address at his risk by Waste Management
International, Inc. within 21 days of the issue of the ordinary
shares to the relevant allottee. Encashment of any such cheque
shall be a complete discharge to Waste Management
International, Inc. for the money represented thereby.
(v) If the Scheme shall not have become effective on or before the
date referred to in clause 5(B) of the Scheme this article shall
be of no effect."
. September 1998
Registered office: 3 Shortlands Hammersmith International Centre London W6 8RX
By Order of the Board S. P. Stanczak Secretary
Notes:-
1. A member entitled to attend to vote at the above meeting may appoint one or
more persons as his proxy to attend and on a poll to vote in his place. A
proxy need not be a member of the Company.
2. Valid forms of proxy must be lodged with the Company's registrar,
Computershare Services PLC, P.O. Box 82, Caxton House, Redcliffe Way,
Bristol BS99 7YA, not less than 48 hours before the time appointed for the
above meeting.
3. Only holders of ordinary shares on the register at 5.30 pm on the day prior
to the day immediately before the meeting or any adjourned meeting (as the
case may be) shall be entitled to attend and/or vote at the meeting. They
shall be entitled to vote in respect of the number of ordinary shares
registered in their names at the above time and any subsequent changes to
the register shall be disregarded in determining rights to attend and vote.
81
SCHEDULE B
DIRECTORS AND OFFICERS OF WMI
DIRECTORS OF WMI
Set forth below are the name and business address of each person who is a
director of WMI and: (i) the present principal occupation or employment of
each such person and the name, principal business and address of the
corporation or other organization in which such occupation or employment of
each such person is conducted and (ii) the material occupations, positions,
offices and employment and the name, principal business and address of any
corporation or other organization in which any material occupation, position,
office or employment of each such person was held during the last five years.
Each person listed below is a citizen of the United States.
NAME AND ADDRESS PRINCIPAL OCCUPATIONS
H. Jesse Arnelle................ Mr. Arnelle has been a director of WMI since the
c/o WMI consummation of the Merger. Mr. Arnelle was a di-
1001Fannin rector of Old WMI from 1992 until the consumma-
Suite 4000 tion of the Merger. In October 1997, he became
Houston, Texas 77002 counsel to Womble, Carlyle, Sandridge and Rice, a
law firm in Winston-Salem, North Carolina. For
more than ten years prior thereto, Mr. Arnelle
was a senior partner of Arnelle, Hastie, McGee,
Wilis and Greene, a San Francisco-based law firm.
From 1993 to 1998, he served as Vice Chairman and
the Chairman of the Pennsylvania State University
Board of Trustees. Mr. Arnelle is also a director
of Florida Power & Light (FPL Group), Eastman
Chemical Co., Textron Corporation, Wells Fargo &
Company and Wells Fargo Bank N.A., Armstrong
World Industries and Union Pacific Resources,
Inc.
Dr. Pastora San Juan Cafferty... Dr. Cafferty has been a director of WMI since the
The University of Chicago consummation of the Merger. Dr. Cafferty was a
The School of Social Service director of Old WMI from July 1994 until the con-
Administration summation of the Merger. She has been a Professor
969 East 60th Street since 1985 at the University of Chicago, where
Chicago, Illinois 60637 she has been a member of the faculty since 1971.
Dr. Cafferty also serves as a director of Kimber-
ly-Clark Corporation, Harris Bankcorp and its
subsidiary, Harris Trust and Savings Bank, and
People's Energy Corporation and on the Boards of
the Rush-Presbyterian-St. Luke's Medical Center
and the Lyric Opera Association, both in Chicago.
Ralph F. Cox.................... Mr. Cox has been a director of WMI since the con-
c/o WMI summation of the Merger. Mr. Cox was a director
1001Fannin of USA Waste from 1996 until the consummation of
Suite 4000 the Merger. He served as a director of Sanifill
Houston, Texas 77002 from September 1993 until December 1996. Since
February 1, 1994, Mr. Cox has been a management
consultant. For four years prior thereto, Mr. Cox
was President of Greenhill Petroleum Corporation,
a subsidiary of Western Mining Corporation. From
1985 through 1990, he served as President and
Chief Operating Officer of Union Pacific Re-
sources Company, a petroleum exploration and pro-
duction company. Before 1985, Mr. Cox spent 31
years with Atlantic Richfield Company ("ARCO"),
joining the ARCO board in 1978, assuming respon-
sibility for ARCO's worldwide petroleum explora-
tion and production activities and minerals ex-
ploration and production activities in 1984, and
culminating with his election as Vice Chairman of
ARCO in 1985. Mr. Cox serves as a
B-1
director of Bonneville Pacific Corporation, an
independent power company; Daniel Industries,
Inc., which manufactures oil and gas measurement
and flow control equipment; Rio Grande, Inc., a
petroleum exploration and production company; and
CH2M Hill, a consulting engineering firm. He also
serves as an Independent Trustee for The Fidelity
Group of funds.
John E. Drury............... Mr. Drury has served as a director and Chief Ex-
c/o WMI ecutive Officer of WMI since the consummation of
1001Fannin the Merger. Until the consummation of the Merger,
Suite 4000 he served as Chairman of the Board of USA Waste
Houston, Texas 77002 from June 30, 1995, and Chief Executive Officer
and a director from May 27, 1994. From 1991 to
May 1994, Mr. Drury served as a Managing Director
of Sanders Morris Mundy Inc., a Houston-based in-
vestment banking firm. Prior thereto, Mr. Drury
served in various management capacities at BFI,
including President and Chief Operating Officer
of BFI from 1982 to 1991.
Richard J. Heckmann......... Mr. Heckmann has been a director of WMI since the
c/o WMI consummation of the Merger. Mr. Heckmann was a
1001Fannin director of USA Waste from 1994 until the consum-
Suite 4000 mation of the Merger. Mr. Heckmann is Chairman,
Houston, Texas 77002 President and Chief Executive Officer of United
States Filter Corporation ("U.S. Filter"), a po-
sition he assumed in July 1990. Prior to joining
U.S. Filter, Mr. Heckmann was a Senior Vice Pres-
ident--Investments and Branch Manager of Pruden-
tial-Bache Securities in Rancho Mirage, Califor-
nia. Mr. Heckmann is also a director of K2 Inc.
and United Rentals, Inc.
Roderick M. Hills........... Mr. Hills has been a director of WMI since the
c/o WMI consummation of the Merger. Mr. Hills was a di-
1001Fannin rector of Old WMI from November 1997 until the
Suite 4000 consummation of the Merger. He served as Presi-
Houston, Texas 77002 dent of Hills Enterprises, Ltd. (formerly The
Manchester Group Ltd.), a consulting firm, since
1987 and as a Partner in Hills & Hills, a law
firm, since 1994. Mr. Hills has also served as
Vice Chairman of Oak Industries, Inc., a manufac-
turing firm, since 1989. Mr. Hills served from
September to November 1996 as Chairman of Feder-
al-Mogul Corporation ("Federal-Mogul"), an auto-
motive parts manufacturing firm. Mr. Hills served
as Chairman of the SEC from 1975 to 1977 and as
counsel to the President of the United States in
1975. Mr. Hills is also a director of Federal-Mo-
gul and Oak Industries, Inc.
Richard D. Kinder........... Mr. Kinder has been a director of WMI since the
c/o WMI consummation of the Merger. Mr. Kinder was a di-
1001Fannin rector of USA Waste from 1997 until the consumma-
Suite 4000 tion of the Merger. He has been Chairman and
Houston, Texas 77002 Chief Executive Officer of Kinder Morgan Energy
Partners, L.P., a master limited partnership
headquartered in Houston, Texas since February
1997. From 1990 through December 1996, he was
President and Chief Operating Officer of Enron
Corp. Prior thereto, Mr. Kinder served in various
management and legal positions with Enron Corp.
and its affiliates commencing in 1980. Mr. Kinder
is also a director of Baker Hughes Incorporated,
KN Energy, Inc. and Transocean Offshore Inc. He
is past Chairman of the Interstate Natural Gas
Association of America and is a Trustee of the
Museum of Fine Arts, Houston.
B-2
Robert S. Miller....................... Mr. Miller was elected to a 12-month term as non-
c/o WMI executive Chairman of the Board of WMI upon the
1001Fannin consummation of the Merger. Mr. Miller was a di-
Suite 4000 rector of Old WMI from May 1997 until the consum-
Houston, Texas 77002 mation of the Merger. He was elected Chairman of
the Board and named Acting Chief Executive Offi-
cer of Old WMI in October 1997. On March 10,
1998, Mr. Miller was named Chief Executive Offi-
cer of Old WMI and served in that capacity until
the consummation of the Merger. Mr. Miller is
also serving as Vice Chairman of Morrison Knudsen
Corporation, an engineering and construction
firm. He served as Chief Executive Officer of
Federal Mogul from September until November 1996
and as Chairman of Morrison Knudsen Corporation
from April 1995 until September 1996. In addi-
tion, since 1993 he has served as Vice President
and Treasurer of Moore Mill and Lumber, a pri-
vately-held forest products firm, and from 1992
to 1993, he served as Senior Partner of James D.
Wolfensohn, Inc., an investment banking firm.
From 1979 to 1992, Mr. Miller worked at Chrysler
Corporation ("Chrysler"), an automobile and truck
manufacturing firm, rising to become Vice Chair-
man of the Board after serving as the company's
Chief Financial Officer. Mr. Miller is a director
of the Company, Federal Mogul, Morrison Knudsen
Corporation, Pope & Talbot, Inc. and Symantec
Corporation.
Mr. Montrone has been a director of WMI since the
Paul M. Montrone....................... consummation of the Merger. Mr. Montrone was a
Fisher Scientific International Inc. director of Old WMI from January 1997 until the
Liberty Lane consummation of the Merger. Mr. Montrone has been
Hampton, New Hampshire 03842 Chairman of the Board since January 1998 and
President, Chief Executive Officer and a director
since December 1991, of Fisher Scientific Inter-
national Inc., a distributor of laboratory equip-
ment and supplies. Since May 1995, Mr. Montrone
has served as Chairman of the General Chemical
Group, Inc., a manufacturer and distributor of
chemicals ("General Chemical") and from prior to
1992 to May 1995 as President and a director of
General Chemical. He also served as Vice Chairman
of the Board of Abex, Inc., a designer and manu-
facturer of engineered components for aerospace,
defense, industrial and commercial markets, or
its predecessors, from 1992 to 1995. Mr. Montrone
was a director of WTI or a predecessor thereof
from 1989 until January 1997.
John C. Pope........................... Mr. Pope has been a director of WMI since the
c/o WMI consummation of the Merger. Mr. Pope was a direc-
1001Fannin tor of Old WMI from November 1997 until the con-
Suite 4000 summation of the Merger. Since January 1996, he
Houston, Texas 77002 has been Chairman of the Board of MotivePower In-
dustries, Inc., a manufacturer and remanufacturer
of locomotives and locomotive components. Mr.
Pope served as President and Chief Operating Of-
ficer of United Airlines and its parent corpora-
tion UAL Corporation, from April 1992 to July
1994. Prior thereto he served as Vice Chairman of
both companies beginning in November 1990, and as
Executive Vice President, Marketing and Finance
beginning in October 1990, as Executive Vice
President, Marketing and Planning from May 1989
to September 1990 and as Chief Financial Officer
beginning in January 1988. Mr. Pope is also a di-
rector of Federal Mogul, Wallace Computer Servic-
es, Inc., Medaphis Corporation, MotivePower In-
dustries, Inc., Lamalie Associates, Inc. and Dol-
lar Thrifty Automotive Group, Inc.
B-3
Rodney R. Proto............. Mr. Proto has been a director, President and
c/o WMI Chief Operating Officer of WMI since the consum-
1001Fannin mation of the Merger. Mr. Proto was President,
Suite 4000 Chief Operating Officer and a director of USA
Houston, Texas 77002 Waste since joining USA Waste in August 1996 un-
til the consummation of the Merger. From February
1992 to August 1996, he was President, Chief Op-
erating Officer and a director of Sanifill. Be-
fore joining Sanifill, Mr. Proto was employed by
BFI for 12 years where he served, among other po-
sitions, as President of Browning-Ferris Indus-
tries Europe, Inc. from 1987 through 1991 and
Chairman of Browning-Ferris Industries Overseas
from 1985 to 1987.
Steven G. Rothmeier......... Mr. Rothmeier has been a director of WMI since
Great Northern Capital the consummation of the Merger. Mr. Rothmeier was
332 Minnesota Street a director of Old WMI from March 1997 until the
Suite W2900 consummation of the Merger. He has been Chairman
St. Paul, Minnesota 55101 and Chief Executive Officer of Great Northern
Capital, a private investment management, con-
sulting and merchant banking firm since March
1993. From November 1989 until March 1993, he was
President of IAI Capital Group, a venture capital
and merchant banking firm. For more than ten
years prior thereto, he served Northwest Air-
lines, Inc. or its parent corporation, NWA, Inc.,
in various executive capacities, including Chair-
man and Chief Executive Officer from 1986 to
1989. Mr. Rothmeier is also a director of Honey-
well, Inc., Department 56, Inc., EW Blanch Hold-
ings, Inc. and Precision Castparts Corp.
Ralph V. Whitworth.......... Mr. Whitworth has been a director of WMI since
c/o WMI the consummation of the Merger. Mr. Whitworth is
1001Fannin a principal and managing member of Relational In-
Suite 4000 vestors LLC, a private investment company. He is
Houston, Texas 77002 also a partner in Batchelder & Partners, Inc., a
financial advisory and investment-banking firm
based in La Jolla, California. From 1988 until
1996, Mr. Whitworth was president of Whitworth
and Associates, a corporate advisory firm. Mr.
Whitworth has served as Chairman of the Board of
Directors of Apria Healthcare Group Inc. since
April 28, 1998 and as a director of Apria
Healthcare Group Inc. since January 1998 and is a
director of CD Radio, Inc. and Wilshire Technolo-
gies, Inc.
Jerome B. York.............. Mr. York has been a director of WMI since the
c/o WMI consummation of the Merger. Mr. York served as a
1001Fannin director of USA Waste from 1997 until the consum-
Suite 4000 mation of the Merger. He has been Vice Chairman
Houston, Texas 77002 of Tracinda Corporation since September 1995.
From 1993 to 1995, he was Senior Vice President
and Chief Financial Officer of IBM Corporation
and was elected to the Board of Directors of IBM
in January 1995. From 1979 to 1993, Mr. York
served in various management positions with
Chrysler, including Executive Vice President--Fi-
nance and Chief Financial Officer, and he was a
director of Chrysler in 1992 and 1993. Mr. York
also serves as a director of MGM Grand, Inc.,
Metro-Goldwyn-Mayer, Inc. and Apple Computer,
Inc.
EXECUTIVE OFFICERS OF WMI
Set forth below are the name and business address, if different than WMI's
address, of each executive officer of WMI who is not also a director of WMI
and: (i) the present principal occupation or employment of each such person
and the name, principal business and address of the corporation or other
organization in which such occupation or employment of each such person is
conducted and (ii) the material occupations, positions, offices
B-4
and employment and the name, principal business and address of any corporation
or other organization in which such occupation, position, office or employment
of each such person was held during the last five years. Unless otherwise
indicated, each person listed below is a citizen of the United States.
NAME AND ADDRESS PRINCIPAL OCCUPATIONS
Earl E. DeFrates........... Mr. DeFrates has been the Executive Vice Presi-
dent and Chief Financial Officer of WMI since the
consummation of the Merger. Mr. DeFrates served
as Executive Vice President and Chief Financial
Officer of USA Waste from May 1994 until the con-
summation of the Merger. From October 1990 to
April 1995, he was also Secretary of USA Waste.
Mr. DeFrates joined USA Waste as Vice-President--
Finance in October 1990 and was elected Executive
Vice President in May 1994. Prior thereto, Mr.
DeFrates was employed by Acadiana Energy Inc.
(formerly Tatham Oil & Gas, Inc.) serving in var-
ious officer capacities including the company's
Chief Financial Officer, since 1980.
Donald R. Chappel.......... Mr. Chappel has been Senior Vice President, Oper-
ations/ Administration of WMI since the consumma-
tion of the Merger. Until the consummation of the
Merger, Mr. Chappel was Acting Chief Financial
Officer of Old WMI from October 1997, and its
Vice President-Financial Services from November
1996 and Vice President and Controller (North
American operations) from August 1995. From 1991
to July 1995, Mr. Chappel was Vice President and
Controller-West and Mountain Areas of WMNA, and
from July to August 1995 Vice President and Con-
troller of CWM. Prior thereto he had served as
Vice President and Controller-WMI Urban Services,
Inc., beginning in June 1987 when he joined Old
WMI.
Susan J. Piller............ Ms. Piller has been Senior Vice President-Em-
ployee Relations of WMI since the consummation of
the Merger. Ms. Piller was Senior Vice President-
Employee Relations of USA Waste from May 1996 un-
til the consummation of the Merger. Prior to
joining USA Waste, Ms. Piller was at BFI from
1984 until 1996, where she held various labor and
employment positions, including Vice President-
Employee Relations. Prior thereto, Ms. Piller was
employed by the Houston law firm of Fulbright &
Jaworski.
William A. Rothrock IV..... Mr. Rothrock has been Senior Vice President-Busi-
ness Development of WMI since the consummation of
the Merger. Mr. Rothrock was Senior Vice Presi-
dent-Business Development of USA Waste from Au-
gust 1996 until the consummation of the Merger.
Mr. Rothrock held similar business development
positions with Sanifill from 1990 to 1996 and BFI
from 1985 to 1990.
Gregory T. Sangalis........ Mr. Sangalis has been Senior Vice President, Gen-
eral Counsel and Secretary of WMI since the con-
summation of the Merger. Mr. Sangalis was Vice
President, General Counsel and Secretary of USA
Waste from April 4, 1995 until the consummation
of the Merger. Prior to joining USA Waste, Mr.
Sangalis was employed by a solid waste subsidiary
of Old WMI serving in various legal capacities
since 1986 and including Group Vice President and
General Counsel from August 1992 to April 1995.
Prior to joining Old WMI, he was General Counsel
of Peavey Company and had been engaged in the
private practice of law in Minnesota.
B-5
Robert P. Damico........... Mr. Damico has been Senior Vice President-Midwest
Area of WMI since the consummation of the Merger.
Mr. Damico was Region Vice President--Mountain
Region of Old WMI from January 1998 until the
consummation of the Merger. Mr. Damico served as
Group President--Mountain Group of Old WMI from
1993 to 1997.
Miller J. Mathews, Jr...... Mr. Mathews has been Senior Vice President-South-
ern Area of WMI since the consummation of the
Merger.
Douglas G. Sobey........... Mr. Sobey has been Senior Vice President-Western
Area of WMI since the consummation of the Merger.
David Sutherland-Yoest..... Mr. Sutherland-Yoest has been Senior Vice Presi-
dent-Atlantic Area of WMI since the consummation
of the Merger. Mr. Sutherland-Yoest was Vice
Chairman of the Board and Vice President--Atlan-
tic Region and President of Canadian Waste Serv-
ices, Inc. from August 1996 until the consumma-
tion of the Merger. He was President, Chief Oper-
ating Officer and a director of USA Waste from
May 1994 until August 1996. Prior to joining USA
Waste, he was President, Chief Executive Officer
and a director of Envirofil, Inc. ("Envirofil").
He joined Envirofil in January 1993 and was
elected a director in March 1993. From September
1989 to June 1992, Mr. Sutherland-Yoest served as
President of Browning-Ferris Industries, Ltd.
("BFI Ltd."), the Canadian subsidiary of BFI.
From January through September 1989, Mr. Suther-
land-Yoest served as Vice President, Corporate
Development, for Laidlaw Waste Systems, Inc.
("Laidlaw"). From 1987 to September 1989, Mr.
Sutherland-Yoest was Laidlaw's Regional Vice-
President--Atlantic Region, located in Columbus,
Ohio. From 1981 to 1987, Mr. Sutherland-Yoest
served as District Manager--Vancouver and Dis-
trict Manager--Calgary for BFI Ltd.
Charles A. Wilcox.......... Mr. Wilcox has been Senior Vice President-Eastern
Area of WMI since the consummation of the Merger.
Mr. Wilcox joined USA Waste in December 1994 and
served as Central Region Vice President immedi-
ately prior to the consummation of the Merger.
Prior to joining USA Waste, Mr. Wilcox was em-
ployed with BFI from 1981 to 1994. He held vari-
ous positions with BFI including Managing Direc-
tor of B.F.S.A. in Riyadh, Saudi Arabia (October
1984 to December 1987) and Regional Vice Presi-
dent--Pacific Region (October 1988 to June 1993).
Other assignments with BFI included President--
Special Services, Corporate; and Division Vice
President--Northern Florida.
Ronald H. Jones............ Mr. Jones has been Vice President and Treasurer
of WMI since the consummation of the Merger. Mr.
Jones was Vice President and Treasurer of USA
Waste from the time he joined USA Waste in June
1995 until the consummation of the Merger. Prior
to joining USA Waste, Mr. Jones was employed by
Chambers Development Company, Inc. ("Chambers")
as Vice President and Treasurer from July 1992 to
June 1995, Director-Corporate Development from
December 1990 to July 1992, and Assistant Vice
President-Finance from July 1989 to December
1990. Prior to joining Chambers, Mr. Jones was
Vice President and manager of the Cincinnati re-
gional office engaged in corporate and middle
market lending with Bank of New York (formerly
Irving Trust Company) and with Chase Manhattan
Bank.
B-6
Bruce E. Snyder............ Mr. Snyder has been Vice President and Chief Ac-
counting Officer of WMI since the consummation of
the Merger. Mr. Snyder was Vice President and
Chief Accounting Officer of USA Waste from July
1, 1992 until the consummation of the Merger.
Prior to joining USA Waste, Mr. Snyder was em-
ployed by the international accounting firm of
Coopers & Lybrand L.L.P., serving there since
1989 as an audit manager. From 1985 to 1989, Mr.
Snyder held various financial positions with
Price Edwards Henderson & Co., a privately held
real estate development and management company in
Oklahoma City, Oklahoma, and its affiliated com-
panies, ultimately serving as Senior Vice Presi-
dent.
B-7
SCHEDULE C
DIRECTORS AND OFFICERS OF THE COMPANY
DIRECTORS OF THE COMPANY
Set forth below are the name, age and business background of each person who
is a director of the Company.
NAME AND ADDRESS PRINCIPAL OCCUPATIONS
Sir William Barlow......... Sir William Barlow has been a director of the
4 Parkside Henley-on- Company since March 1992 and is a former Chairman
Thames Oxfordshire RG9 1TX of BICC plc (which includes Balfour Beatty Limit-
England ed). He is a former Chairman of the British Post
Office (which during his tenure included British
Telecom), and of Thorn EMI Engineering Group. Sir
William Barlow is a citizen of the United King-
dom.
Peter Dessing.............. Mr. Dessing has been a director of the Company
Waste Management since January 1997. He was appointed Finance Di-
International plc 3 rector in March 1997. Mr. Dessing is the Director
Shortlands Hammersmith principally charged by the Board of Directors
International Centre with overseeing the finance and accounting opera-
London W6 8RX England tions of the Company. From 1990 to March 1997, he
was the manager of the Company's operations in
the Netherlands. Mr. Dessing is also a director
of R. Frazier Group Limited. He is a non-resident
citizen of the United States and currently re-
sides in the United Kingdom.
Jan Ekman.................. Mr. Ekman has been a director of the Company
Svenska Handelsbanken since March 1992 and has been Vice Chairman of
Grevgrand 2 S-106 70 Svenska Handelsbanken (a major Swedish banking
Stockholm Sweden institution) since 1985. Mr. Ekman is Chairman of
WMI Sellbergs AB and Svensk Avfallskonverting AB,
each a subsidiary of the Company, and also a di-
rector of Catella AB, NCC AB, PLM AB and Ingka
Holdings B.V. Amsterdam. He is also a member of
the Banking Advisory Group of the International
Finance Corporation, Washington, D.C. He is a
citizen of Sweden.
Edwin G. Falkman........... Mr. Falkman has been a director of the Company
Waste Management since February 1992 and the Company's Chairman
International plc 3 since July 1995. From June 1992 to July 1995 he
Shortlands Hammersmith served as the Chief Executive of the Company. He
International Centre was employed by Old WMI from 1977 to February
London W6 8RX England 1992, working exclusively on its international
operations, and was a Vice President of Old WMI
from January 1990 to February 1992 and President
of WMII from June 1989 until August 1991. Mr.
Falkman is the Chairman of the Environment Com-
mission of the International Chamber of Commerce
and a member of the Executive Committee of the
World Business Council for Sustainable Develop-
ment. He is also a director of Wessex Water plc.
He is a non-resident citizen of the United States
and has resided in the United Kingdom since 1978.
Donald F. Flynn............ Mr. Flynn has been a director of the Company
Flynn Enterprises Inc. 676 since March 1992. Mr. Flynn served as a director
North Michigan Avenue of Old WMI from 1981 until the consummation of
Suite 4000 Chicago, the Merger. He served as Chairman of the Board
Illinois 60611 U.S.A. and President of Flynn Enterprises, Inc., a fi-
nancial advisory and venture capital firm, since
February 1988. He also served as Chairman of the
Board, from July 1992 to February 1996 and Chief
Executive Officer from July 1992 to May 1995, of
Discovery Zone, Inc., a franchiser and
C-1
operator of indoor entertainment and fitness fa-
cilities designed for children. Mr. Flynn was a
Senior Vice President of Old WMI from May 1975 to
January 1991. From January 1, 1991 to December
31, 1994, Mr. Flynn served as a consultant to Old
WMI. Mr. Flynn also serves as a director of
Psychemedics Corporation and Extended Stay Ameri-
ca, Inc. He is a citizen of the United States.
Bo Gabrielson.............. Mr. Gabrielson was elected to the Board of Direc-
Waste Management tors in January 1997 and has been Chief Executive
International plc 3 of the Company since March 1997. The Chief Execu-
Shortlands Hammersmith tive is the director principally charged by the
International Centre Board of Directors with overseeing the executive
London W6 8RX England operations of the Company. He served as Vice
President-Group Financial Director of Waste Man-
agement International Services Limited ("WM Serv-
ices") between July 1995 and January 1997. From
February 1992 to July 1995, he served as Vice
President-Legal Affairs of WM Services. Previous-
ly, Mr. Gabrielson was employed for nine years by
PLM AB (Sweden) in various legal and financial
positions, most recently as Executive Vice Presi-
dent of Finance and Administration. He is a non-
resident citizen of Sweden and has resided in the
United Kingdom since 1992.
Joseph M. Holsten..........
Waste Management, Inc. Mr. Holsten has been a director of the Company
3003 Butterfield Road Oak since July 1995. He served as the Company's Chief
Brook, Illinois Executive between July 1995 and March 1997. Mr.
60523-1100 U.S.A. Holsten was elected Executive Vice President and
Chief Operating Officer of Old WMI in February
1997. Since joining Old WMI in 1981, Mr. Holsten
has held a number of positions within the Group
including from October 1993 to July 1995 serving
as Executive Vice President and Chief Financial
Officer of Old WMI, from September to October
1993 as Vice President, Chief Financial Officer
and Treasurer of Rust, and from April 1992 to Au-
gust 1993 as Vice President of Acquisitions and
Project Development for the Company. He is a cit-
izen of the United States.
Robert S. Miller........... Mr. Miller has been a director of the Company
1001 Fannin Suite 4000 since January 1988. Mr. Miller has been a direc-
Houston, Texas 77002 tor of WMI since the consummation of the Merger.
U.S.A. Mr. Miller was a director of Old WMI from May
1997 and was Chairman of the Board and Chief Ex-
ecutive Officer from October 1997 until the con-
summation of the Merger. He has been Vice Chair-
man of Morrison Knudsen Corporation since Septem-
ber 1996 and served as Chief Executive Officer of
Federal Mogul from September until November 1996.
Since 1993 Mr. Miller has served as Vice Presi-
dent and Treasurer of Moor Mill and Lumber and
from 1992 to 1993 he was Senior Partner at James
D. Wolfensohn, Inc. Between 1979 and 1992 Mr.
Miller was employed at Chrysler. Mr. Miller is a
director of the Coleman Company, Inc., Federal
Mogul, Fluke Corporation, Pope and Talbot, Inc.
and Symantec Corporation. He is a citizen of the
United States.
Giorgio Porta.............. Mr. Porta has been a director of the Company
Comune di Milano Piazza since March 1992 and is the Chief Councilor for
Scala 3 20122 Milan Italy Privatization and Development for the Municipal-
ity of Milan, Italy. Mr. Porta was the Interna-
tional Affairs Director of ENI S.p.A., the Ital-
ian state-owned petroleum and chemicals group
from 1993 to 1997. He was Chairman of Enichem
S.p.A. (a specialty chemical business) from 1990
until 1993. From 1988 to 1990
C-2
he served as Vice Chairman of Ferruzzi Agricola
Finanziaria. He is Chairman of the Environment
Working Group of UNICE (the Union of Industrial
Employers Confederations of Europe), and Chairman
of the Environment Working Group of Confindustria
(The Industrial Employers Federation of Italy).
He is also a member of the Environment Consulta-
tive Forum of the European Commission. He is a
citizen of Italy.
Dr. Manfred Scholz......... Dr. Scholz has served as a director of the Com-
Haindl Papier GmbH Georg- pany since April 1993 and is Executive Director
Haindl--Strasse 5 86153 of Haindl Papier GmbH (a paper manufacturing com-
Augsburg Germany pany). He is also the President of the Bavarian
Industry Federation and a member of the supervi-
sory boards of Gothaer Versicherungsbank, G.A.
Pfleiderer Unternehmensverwaltung, Heilit &
Woerner Bau-AG, Bayerische Handelsbank and SG
Holding AG. He is a citizen of Germany.
EXECUTIVE OFFICERS OF THE COMPANY
The Company has no officers; however, certain technical, administrative,
clerical and support services of the Company and the various country holding
companies and operating subsidiaries of the Company are performed by WM
Services, an English subsidiary of the Company. Its staff, which are located
primarily in London, and the key staff members of the Company's other
subsidiaries, including country-level holding companies and operating
companies, implement the policies of the Company Board and manage various
aspects of the Company's business. The senior management of WM Services
includes the following individuals:
NAME AND ADDRESS PRINCIPAL OCCUPATIONS
Stephen P. Stanczak........
3 Shortlands Hammersmith Mr. Stanczak has been Vice President-Legal Af-
International Centre fairs since July 1995 and Company Secretary of
London W6 8RX England the Company since October 1995. From January 1992
to July 1995 he was Staff Vice President and As-
sociate General Counsel of WTI and from May 1993
to July 1995 he served as Corporate Secretary of
WTI. He served as Vice President, Corporate Sec-
retary and Associate General Counsel of Rust from
May 1994 to July 1995. Mr. Stanczak is a non-res-
ident citizen of the United States and currently
resides in the United Kingdom.
John S. Quinn..............
3 Shortlands Hammersmith Mr. Quinn has been Vice President and Corporate
International Centre Controller since July 1997. From March 1996 until
London W6 8RX England June 1997 he was Division President for Old WMI's
operations in Alberta and British Columbia, Cana-
da. From February 1992 to February 1996 he was
Vice President and Controller--Western Canada for
Old WMI and prior to that he held a number of
controllership functions throughout Canada with
Old WMI during the period from August 1987. Mr.
Quinn is a non-resident citizen of Canada and
currently resides in the United Kingdom.
C-3
SCHEDULE D
KPMG Corporate Finance
8 Salisbury Square
London EC4Y 8BB
United Kingdom
Sir William Barlow, Messrs Jan Ekman and
Giorgio Porta and Dr Manfred Scholz
(together "Independent Directors")
Waste Management Plc ("plc" or "Company")
3 Shortlands
Hammersmith International Centre
London
W6 8RX
29 June 1998
Dear Sirs
PROJECT PHOENIX
You, the Independent Directors, have requested our opinion as to the fairness
from a financial point of view to the holders (other than Waste Management
Inc. ("Inc") and its subsidiaries) (the "Minority Shareholders") of the
outstanding ordinary shares, par value 10 pence per share (the "Minority
Shares") of plc, of the 345 pence per Minority Share in cash consideration
proposed to be paid to the Minority Shareholders by Inc (the "Proposal"),
details of which are set out in the attached draft news release. As of today's
date, Inc is the holder of approximately 80% of plc ordinary shares.
KPMG Corporate Finance, as part of its investment banking and corporate
finance advisory business, is engaged in the valuation of businesses and their
securities in connection with, inter alia, mergers and acquisitions,
disposals, private placements and valuations. We are acting as financial
adviser to the Independent Directors in connection with, and have participated
in certain of the negotiations leading to, the Proposal.
In connection with this opinion, we have:
. reviewed the financial terms and conditions of the Proposal;
. reviewed certain historical business and financial information relating to
the Company;
. reviewed certain internal financial analyses and forecasts for the Company
prepared by its management;
. held discussions with members of the senior management of the Company
regarding its past and current business operations, financial condition and
future prospects;
. reviewed the reported price and trading activity for the ordinary shares;
. visited certain of the facilities of the Company;
. compared certain financial and stock market information for the Company with
similar information for certain other companies the shares of which are
publicly traded;
. reviewed the financial terms of certain business combinations in the waste
industry specifically and in other industries generally; and
. performed such other studies and analysis as we considered appropriate.
In light of Inc's position as the majority shareholder in the Company and the
absence of any indication that Inc would support either a sale of the Company
or other alternatives to the Proposal involving a third party, an active
solicitation of third party interest in a transaction involving the Company is
not practicable and therefore has not been pursued.
We have relied upon the accuracy and completeness of all the financial
information and other information reviewed by us and have assumed such
accuracy and completeness for the purposes of rendering this opinion. We have
not performed any independent verification of this information. In addition,
we have not made an independent evaluation or appraisal of the assets and
liabilities of the Company and we have not been furnished with any such
evaluation or appraisal. Our advisory services and the opinion expressed
herein are provided for the information and assistance of the Independent
Directors in connection with their consideration of the transaction
contemplated by the Proposal and such opinion does not constitute a
recommendation as to how any holder of ordinary shares should vote or act with
respect to such transaction.
In rendering our opinion, we have assumed that the Proposal will be
consummated on the terms stated in the draft news release attached, without
any waiver of any material terms or conditions by the Company and that
obtaining any necessary regulatory or third party approvals will not have an
adverse effect on the Company.
KPMG Corporate Finance is acting as financial adviser to the Independent
Directors in connection with the Proposal and will receive a fee for its
services, a portion of which is contingent upon consummation of the Proposal.
Based on and subject to the foregoing:
. we are of the opinion that the consideration is fair to the Minority
Shareholders from a financial point of view; and
. we consider the terms of the Proposal to be fair and reasonable so far as
the Minority Shareholders are concerned.
Yours faithfully
KPMG Corporate Finance
2
SCHEDULE E
Investment
Banking
Corporate and
Institutional
Client Group
5500 Sears
Tower
Chicago,
Illinois 60606
312 906 6200
FAX 312 906
6262
LOGO June 29, 1998
Board of Directors
Waste Management, Inc.
3003 Butterfield Road
Oak Brook, Illinois 60521
Members of the Board of Directors:
Waste Management, Inc. (the "Acquiror"), Waste Management International,
Inc. ("WMII"), a wholly owned subsidiary of the Acquiror, and Waste Management
International, plc ("WME") have reached an agreement on the terms of a
proposal pursuant to which the Acquiror, through WMII, would acquire the
approximately 20% of the WME ordinary shares not already directly or
indirectly owned by the Acquiror or its affiliates (the "Shares") for
(Pounds)3.45 per ordinary Share net to the seller in cash (the
"Consideration"). Each depositary Share represented by American Depositary
Receipts ("ADR"), the equivalent of 2 ordinary Shares, would be valued at
$11.50 per ADR based on the exchange rate US$1.6662:UK(Pounds)1 as of June 29,
1998, it being understood that because the Shares are priced in Pounds
Sterling the U.S. Dollar value of each ADR will fluctuate with the U.S.
Dollar--Pounds Sterling exchange rate. The proposal will be implemented by
means of a Scheme of Arrangement under Section 425 of the English Companies
Act 1985 (the "Transaction").
You have asked us whether, in our opinion, the Consideration to be paid by
the Acquiror pursuant to the Transaction is fair from a financial point of
view to the Acquiror.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed certain publicly available business and financial information
relating to the WME and the Acquiror that we deemed to be relevant;
(2) Reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets, liabilities and prospects
of WME, as well as the amount and timing of the cost savings and
related expenses and synergies expected to result from the Transaction
(the "Expected Cost Savings") furnished to us by the WME and the
Acquiror, respectively;
(3) Conducted discussions with members of senior management of WME and the
Acquiror concerning the matters described in clauses 1 and 2 above, as
well as their respective businesses and prospects before and after
giving effect to the Transaction and the Expected Cost Savings;
(4) Reviewed the market prices and valuation multiples for the Shares and
compared them with those of certain publicly traded companies that we
deemed to be relevant;
(5) Reviewed the results of operations of WME and compared them with those
of certain publicly traded companies that we deemed to be relevant;
(6) Compared the proposed financial terms of the Transaction with the
financial terms of certain other transactions which we deemed to be
relevant;
(7) Participated in discussions and negotiations among representatives of
the Acquiror and WME and their financial and legal advisors;
(8) Reviewed the potential pro forma impact of the Transaction on the
Acquiror;
(9) Reviewed the U.S. and U.K. joint press releases, dated June 29, 1998,
describing the terms of the Transaction (the "Press Releases"); and
(10) Reviewed such other financial studies and analyses and took into
account such other matters as we deemed necessary, including our
assessment of general economic, market and monetary conditions.
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available, and we have
not assumed any responsibility for independently verifying such information or
undertaken an independent evaluation or appraisal of any of the assets or
liabilities of WME. In addition, we have not assumed any obligation to conduct
any physical inspection of the properties or facilities of the WME. With
respect to the financial forecast information and the Expected Cost Savings
furnished to or discussed with us by WME or the Acquiror, we have assumed that
they have been reasonably prepared and reflect the best currently available
estimates and judgment of WME's or the Acquiror's management as to the
expected future financial performance of WME or the Acquiror, as the case may
be, and the Expected Cost Savings. We have also assumed that the final form of
the Press Releases will be substantially similar to the last draft reviewed by
us.
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated on, and on the information made available
to us as of, the date hereof. Without limiting the foregoing, our opinion does
not address the potential effects of fluctuations in the U.S. Dollar--Pounds
Sterling exchange rate after the date hereof. We have assumed that in the
course of obtaining the necessary regulatory or other consents or approvals
(contractual or otherwise) for the Transaction, no restrictions, including any
divestiture requirements or amendments or modifications, will be imposed that
will have a material adverse effect on the contemplated benefits of the
Transaction.
We are acting as financial advisor to the Acquiror in connection with the
Transaction and will receive a fee from the Acquiror for our services, a
significant portion of which is contingent upon the consummation of the
Transaction. In addition, the Acquiror has agreed to indemnify us for certain
liabilities arising out of our engagement. We are currently advising the
Acquiror in connection with its merger with USA Waste Services, Inc., we are
an appointed financial advisor to WME and have, in the past, provided
financial advisory and financing services to the Acquiror and/or its
affiliates, including WME, and may continue to do so and have received, and
may receive, fees for the rendering of such services. In addition, in the
ordinary course of our business, we may actively trade the Shares and other
securities of WME, as well as securities of the Acquiror for our own account
and for the accounts of customers and, accordingly, may at any time hold a
long or short position in such securities.
This opinion is for the use and benefit of the Board of Directors of the
Acquiror. Our opinion does not address the merits of the underlying decision
by the Acquiror to engage in the Transaction and does not constitute a
recommendation to any shareholder of WME as to how such shareholder should
vote on the proposed Transaction or any matter related thereto.
On the basis of and subject to the foregoing, we are of the opinion that, as
of the date hereof, the Consideration to be paid by the Acquiror pursuant to
the Transaction is fair from a financial point of view to the Acquiror.
Very truly yours,
Merrill Lynch, Pierce, Fenner &
Smith Incorporated
[WASTE MANAGEMENT INTERNATIONAL PLC LOGO]
Waste Management International plc "plc"
Presentation by KPMG Corporate Finance
to Sir William Barlow, Messrs Jan Ekman and Giorgio Porta and
Dr Manfred Scholz
(the "Independent Directors" of plc)
Monday, 29 June 1998
[KPMG LOGO] KPMG Corporate Finance
Contents
- - Introduction to this presentation
- - KPMG Corporate Finance's approach to the valuation exercise
- Overview and methodology
- Stock market value
- Discounted cash flow valuation examples
- Earnings valuation (comparable companies and comparable transactions)
- Buy-outs of minority interests in quoted companies
- Valuation from Inc's perspective
- - Conclusion
- - Fairness opinion
- - Draft press release
[KPMG LOGO] [WASTE MANAGEMENT, INTERNATIONAL PLC LOGO]
1
INTRODUCTION TO THIS PRESENTATION
- - The Independent Directors have assembled this morning to discuss and, if
thought appropriate, to concur in the proposal agreed in principle between
Sir William Barlow, Chairman of the Independent Directors and Robert S
Miller, Chairman and Chief Executive of Waste Management, Inc ("Inc"),
details of which are set out in the attached draft news release (the
"Proposal").
- - As financial adviser to the Independent Directors, KPMG Corporate Finance
sets out in this presentation a summary of its evaluations and our
conclusion regarding the Proposal.
- - Our evaluations and conclusion are predicated on the bases and assumptions
and are subject to the caveats set out in this presentation.
- - We have based our conclusion on the valuation exercise that we have
performed. In performing our valuation exercise we have reviewed the
prospects of plc for each country in which it operates, and for the major
profit centres we have conducted site visits and held discussions with
local management. The output from this detailed review has allowed us to
refine the figures used in our valuation in order to achieve a more robust
result than might otherwise have been possible.
- - This presentation contains within it a copy of the fairness opinion which
we intend to sign in the event that the Independent Directors proceed with
the Proposal.
[KPMG LOGO] [WASTE MANAGEMENT, INTERNATIONAL PLC LOGO]
2
KPMG CORPORATE FINANCE'S APPROACH TO THE VALUATION EXERCISE
[KPMG LOGO] [WASTE MANAGEMENT, INTERNATIONAL PLC LOGO]
3
OVERVIEW AND METHODOLOGY
APPROACH TO THE TECHNICAL VALUATION EXERCISE
- - The technical valuation exercise has been carried out applying the
following techniques:
- Assessment of the stock market value - both actual and perceived
underlying
- Discounted cash flow valuation
- Earnings valuation (comparable companies and comparable transactions)
- Comparison with buy-outs of minority interests in quoted companies
- Valuations from Inc's perspective
- - The assessment of stock market value technique seeks to `verify or call
into question' the current market price and to explain relevant price
movement trends.
- - The discounted cash flow, earnings and comparison with buy-outs of minority
interests techniques each set out to value plc, from first principles, on a
"stand alone" basis.
- - The valuations from Inc's perspective technique sets out to establish the
impact on Inc's EPS, and where possible to quantify, the benefits to Inc of
owning the outstanding minority of plc - and, additionally, to assess what
premia Inc has given to other minority groups.
- - In approaching the technical valuation exercise, we have had regard to the
asset base of plc but as we consider the earnings/cash flow generation of
plc to be its key value driver, we do not regard assets as being an
appropriate indicator of plc's value.
- - Ordinarily we would seek to identify and evaluate an appropriate premium
for control of plc; in this case, of course, that is not relevant since plc
Is a controlled company. There is, however, a premium in our view to be
associated with absolute control which is factored into our conclusions.
[KPMG LOGO] [WASTE MANAGEMENT, INTERNATIONAL PLC LOGO]
4
OVERVIEW AND METHODOLOGY (CONT.)
ASSESSMENT OF STOCK MARKET VALUE
- - We have analysed the historical movement in the share price of plc in order
to determine and explain the trend. Our analysis has been focused on two
key areas.
- - First, whether the share price movements can be explained by factors
specifically relating to plc and/or general market factors (eg. the Asian
crisis); alternatively whether events involving Inc (which are not directly
relevant to the intrinsic value of plc) have impacted plc's share price.
- - Second, whether in the current plc share price there exists (or does not)
some level of premium in anticipation of an imminent buy-out by Inc of the
20% minority; in other words, to determine whether the trading price is
'correct' or is already trading at an anticipation premium.
DISCOUNTED CASH FLOW VALUATION
- - We have performed the DCF valuation on the basis of the projections,
presented to us by plc on 13 May 1998 as prepared at plc head office level
and submitted to Merrill Lynch, financial advisers to Inc.
- - We understand that the most recent Group Strategic Plan in respect of years
beyond 1998 was prepared in July 1997, since when certain material changes
have taken place (e.g. loss of Buenos Aires contract). The 13 May 1998
projections were we understand prepared in a very short time frame, based
on the up to date 1998 budget. They were then projected forward on the
basis of high level assumptions and with no input from operational
management.
[KPMG LOGO] [WASTE MANAGEMENT, INTERNATIONAL PLC LOGO]
5
OVERVIEW AND METHODOLOGY (CONT.)
- - Based on our discussions with certain senior members of management and
information provided to us by plc, we have restated cash flows relating to
those countries of operation (to reflect information provided to us during
our site visits) where the 13 May 1998 projections may be materially
different from those anticipated (as we understand it) at the operational
level.
- - In addition, the 13 May 1998 projections presented to us by plc
incorporated the impact of an ongoing acquisition strategy during the
period to 2002. We have therefore also run the model to exclude the impact
of the acquisition activity.
EARNINGS VALUATION
- - Our valuation based on earnings commenced with a review, within historic
and prospective earnings, of material distorting items (eg. restructuring
costs) in order to determine appropriate figures for adjusted maintainable
earnings (EBITDA).
- - Having established figures for adjusted maintainable earnings, a range of
multiples was applied to those earnings based on comparable quoted
companies (CoCo) and comparable transactions (CoTran) data in the waste
sector.
- - The resulting valuation of plc's earnings stream is based on market ratings
of earnings derived from waste activities.
[KPMG LOGO] [WASTE MANAGEMENT, INTERNATIONAL PLC LOGO]
6
OVERVIEW AND METHODOLOGY (CONT.)
COMPARISONS WITH BUY-OUTS OF MINORITY INTERESTS IN QUOTED COMPANIES
- - We have also focused on the specific circumstance of Inc being a majority
(80%) shareholder, buying out the remaining minority (20%) in a publicly
traded company. We have selected transactions in which third parties have
bought out quoted minorities (The Telegraph, Calor Group, News
International, Lloyds Abbey Life, Societe Generale de Belgique among
others) and drawn conclusions as regards the valuation of the 20% minority
interest in plc.
VALUATION FROM INC'S PERSPECTIVE
- - Finally, we have valued the plc minority interest from Inc's perspective
having regard to the impact on Inc's EPS. In this context, we have
considered the tax benefits and synergies potentially arising from a
take-out by Inc of the 20% minority.
- - In this context, we have also looked at those transactions (Chemical Waste
Management, Rust International and Wheelabrator Technologies) where Inc has
acquired minority shareholder groups' interests.
[KPMG LOGO] [WASTE MANAGEMENT, INTERNATIONAL PLC LOGO]
7
STOCK MARKET VALUE
Inc/plc share price relative to indices
RELATIVE PERFORMANCE SCALE
DATE Inc share price plc share price DJI Index FTSE All share index
- ---- --------------- --------------- --------- --------------------
03/04/92 1.000000 1.000000 1.000000 1.000000
28/05/93 0.901639 1.111111 1.085660 1.228430
22/07/94 0.734426 1.005128 1.149558 1.361574
15/09/95 0.796721 0.586325 1.47658 1.536829
08/11/96 0.901639 0.463248 1.914315 1.688923
02/01/98 0.709836 0.300855 2.451453 2.130474
[KPMG LOGO] [WASTE MANAGEMENT, INTERNATIONAL PLC LOGO]
8
STOCK MARKET VALUE (CONT.)
Inc vs plc rebased from May 1996
RELATIVE PERFORMANCE SCALE
DATE Inc share price plc share price
- ---- --------------- ---------------
03/05/96 1.000000 1.000000
16/08/96 0.896797 0.821244
29/11/96 1.024911 0.704663
14/03/97 0.900356 0.630829
27/06/97 0.943060 0.725389
10/10/97 0.871886 0.652850
23/01/98 0.647687 0.472798
08/05/98 0.987544 0.590674
[KPMG LOGO] [WASTE MANAGEMENT, INTERNATIONAL PLC LOGO]
9
STOCK MARKET VALUE (CONT.)
Inc vs plc rebased from 1 January 1998
RELATIVE PERFORMANCE SCALE
DATE Inc share price plc share price
- ---- --------------- ---------------
01/01/98 1.000000 1.000000
22/01/98 0.845455 1.036932
12/02/98 0.897818 1.028409
05/03/98 0.879636 1.073864
26/03/98 1.120364 1.278409
16/04/98 1.227273 1.301136
07/05/98 1.252364 1.295455
[KPMG LOGO] [WASTE MANAGEMENT, INTERNATIONAL PLC LOGO]
10
STOCK MARKET VALUE (CONT.)
SUMMARY OF REVIEW OF PLC SHARE PRICE MOVEMENTS
- - Since flotation of the minority shares in plc in 1993, the quoted stock
values of plc and Inc have shown a strong degree of correlation. Whilst
this may be partially explained by the similarities in the performance of
the two businesses, it is hard not to conclude that the share prices are
linked to some extent. This is particularly true over the last nine months.
- - We are aware that at least 82% of the minority is held by US shareholders
either directly or through the ADR programme and management at plc believe
that these parties are also in the main shareholders in Inc. This apparent
correlation in the two shareholder registers ]ends weight to the conclusion
that the share prices are linked.
- - On the day of announcement of the Inc merger, the plc mid market share
price rose from 190p to 208p and thereafter rose rapidly to a level of
247.5p*. This increase, in our view, reflects not an improvement in the
underlying fundamentals of plc but a belief amongst shareholders that the
new parent will improve the value of an investment in plc, either by
improving the business or by a buy-out of the minority at a premium.
* - based upon the London Stock Exchange closing mid-market price on 26 June
1998.
[KPMG LOGO] [WASTE MANAGEMENT, INTERNATIONAL PLC LOGO]
11
DISCOUNTED CASH FLOW VALUATION EXAMPLES
DISCOUNT FACTOR - 9.0%
DCF Value Representing a Premium Premium
Scenario Pounds Sterling 'm share price of to 247.5 Pence to 190 Pence
- -------- ------------------ -------------- -------------- ------------
Base case 1461 389p 57% 105%
Revised Base case 1414 377p 52% 98%
Including Country adjustments 1475 393p 59% 107%
Including Acquisition adjustments 1336 356p 44% 87%
DISCOUNT FACTOR - 10.0 %
DCF Value Representing a Premium Premium
Scenario Pounds Sterling 'm share price of to 247.5 Pence to 190 Pence
- -------- ------------------ -------------- -------------- ------------
Base case 1197 319p 29% 68%
Revised Base case 1148 306p 24% 61%
Including Country adjustments 1199 320p 29% 68%
Including Acquisition adjustments 1125 300p 21% 58%
DISCOUNT FACTOR - 11.0 %
DCF Value Representing a Premium Premium
Scenario Pounds Sterling 'm share price of to 247.5 Pence to 190 Pence
- -------- ------------------ -------------- -------------- ------------
Base case 1001 267p 8% 40%
Revised Base case 951 253p 2% 33%
Including Country adjustments 995 265p 7% 40%
Including Acquisition adjustments 968 258p 4% 36%
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12
DISCOUNTED CASH FLOW VALUATION (CONT.)
SUMMARY OF DISCOUNTED CASH FLOW VALUATION
- - The Base case represents the projections presented to us by plc on 13 May
1998 as prepared at plc head office level and as submitted to Merrill
Lynch.
- - The Revised Base case takes the Base case and adjusts it for known errors
(eg correction of the treatment of the Enterpa acquisition).
- - The Including Country adjustments case adds to the Revised Base case by
making appropriate adjustments reflecting the key regional valuation issues
which came out of our fieldwork.
- - The Including Acquisition adjustments case adds to the Including Country
adjustments case by adjusting the model to exclude the impact of the
acquisition activity as stated in the overview and methodology.
[KPMG LOGO] [WASTE MANAGEMENT, INTERNATIONAL PLC LOGO]
13
DISCOUNTED CASH FLOW VALUATION (CONT.)
KEY FEATURES
- - It is clear that all the various adjustments being made to the Base case do
not make significant differences to the DCF valuation of plc.
- - The DCF valuation is, however, extremely sensitive to the weighted average
cost of capital ('WACC') for plc and therefore the discount rate used.
- - In addition to the discount rate used, this valuation is also sensitive to:
- the exchange rate of sterling against the other major currencies;
- the number of acquisitions to be made and the funding of those
acquisitions;
- the terminal value. In all scenarios >66% of the value is within the
terminal value;
- the extent of the recovery anticipated in the Italian operations;
- the renewal of joint venture operating agreements at the appropriate
times.
[KPMG LOGO] [WASTE MANAGEMENT, INTERNATIONAL PLC LOGO]
14
EARNINGS VALUATION - COMPARABLE COMPANIES
Adjusted Equity
Value Pounds Representing a
Comparator Pounds Sterling 'm Multiple Sterling 'm share price of
- ---------- ------------------ -------- --------------- --------------
Sales Prospective 926 0.8-2.0 559-1,670 149-445p
Prospective+ 1 1,111 0.7-1.7 596-1,707 159-455p
EBITDA Prospective 193 4.7-7.8 725-1,324 193-353p
Prospective + 1 248 4.1-6.3 833-1,377 222-367p
- - The valuation is clearly dependent on the multiple chosen. In this case we
have used appropriate comparatives from the following companies:
- Allied Waste Industries Inc - Browning Ferris Industries Inc
- Caird Group - Laidlaw Environmental Services Inc
- Shanks & McEwan - SITA
- USA Waste Services - Waste Recycling Group
- Inc
- - The multiples that we have used represent the lower end of the range of
those from the above companies to reflect the relative performance.
However, it should also be noted that, since plc is a controlled company,
it would be appropriate to apply an additional discount to the multiples
used above.
- - The Earnings valuation - Comparable companies produces a relatively wide
range of values which broadly indicate that the prospective earnings
support the existing share price.
[KPMG LOGO] [WASTE MANAGEMENT, INTERNATIONAL PLC LOGO]
15
EARNINGS VALUATION - COMPARABLE TRANSACTIONS
Adjusted Equity
Value Pounds Representing a
Comparator Pounds Sterling 'm Multiple Sterling 'm share price of
- ---------- ------------------ -------- --------------- --------------
Sales Historic 1,088 1.19-2.03 1,113-2,027 297-540p
EBITDA Historic 225 4.0 - 7.5 717-1,503 191-401p
- - The valuation is clearly dependent on the multiple chosen. In this case we
have used appropriate comparatives from acquisitions by the following
companies:
- Haul Waste - Browning Ferris Industries Inc
- Companie Generale des Eaux - Laidlaw Environmental Services Inc
- Shanks & McEwan - SITA
- USA Waste Services - Waste Recycling Group
- Groupe Fabricom - Republic Industries Inc
- - The multiples are all based on historic performance which restricts the
usefulness of this valuation.
[KPMG LOGO] [WASTE MANAGEMENT, INTERNATIONAL PLC LOGO]
16
BUY-OUTS OF MINORITY INTERESTS IN QUOTED COMPANIES
BUY-OUTS OF QUOTED MINORITY SHAREHOLDINGS GENERALLY
COMPANY PREMIUM
Societe Generale de Belgique 15%
Lloyds Abbey Life 18%
News International 39%
Calor Group 22%
The Telegraph 21%
Isle of Man Steam Packet Co 13%
Gartmore 12%
Phoenix Timber Group 15%
lpeco Holdings 16%
- - It is evident from the above that, with the exception of News
International, premia paid for minority stakes are relatively consistent at
between 15% and 20%.
BUY-OUTS OF MINORITY SHAREHOLDINGS BY INC (RELEVANT PARTICULARLY FROM INC'S
PERSPECTIVE)
COMPANY PREMIUM
Chemical Waste Management Inc 10.6%
Rust International Inc 27.0%
Wheelabrator Technologies Inc 26.9%
- - It should be noted that in each of the above transactions there was no
material uplift in the share price prior to the announcement of the offer.
[KPMG LOGO] [WASTE MANAGEMENT, INTERNATIONAL PLC LOGO]
17
VALUATION FROM INC'S PERSPECTIVE
TANGIBLE SYNERGISTIC BENEFITS
- - The benefits to Inc of owning 100% of plc are both tangible and intangible.
There are a number of immediate cost savings that could be made including
closure of the London office with an annual saving of approximately Pounds
Sterling 8-10 million in the first full year.
THE IMPACT ON INC'S EPS
- - Whatever the price paid for the minority of plc, the impact on EPS for Inc
will be relatively immaterial due to the difference in size between the two
parties.
- - Notwithstanding the above, if the synergies obtainable from closing the
office in London are included, we estimate that Inc could justify paying
345p per share without the transaction becoming earnings dilutive for Inc
in 1999.
[KPMG LOGO] [WASTE MANAGEMENT, INTERNATIONAL PLC LOGO]
18
VALUATION FROM INC'S PERSPECTIVE (CONT.)
NON-TANGIBLE BENEFITS
There are a number of non-tangible benefits that Inc could realise by owning
100% of plc; these we consider could be used in any debate on price, although
it would be impractical to establish a quantative value. These non-tangible
benefits include:
- Liquidating plc at its holding company level would have certain
benefits over and abov the tangible cost savings previously
discussed.
- The environmental covenant made by Inc to plc for the protection of
the minority shareholders may be able to be withdrawn.
- Inc would be able to sell or transfer surplus assets out of plc
should it so wish.
- The ability to pay a tax efficient dividend from BV.
[KPMG LOGO] [WASTE MANAGEMENT, INTERNATIONAL PLC LOGO]
19
CONCLUSION
Pursuant to the Proposal, Inc is proposing that minority shareholders will in
November 1998 receive 345p in cash per share, representing a premium of
approximately 39% to the closing share price of 247.5p on the London Stock
Exchange on 26 June 1998. The valuation exercise we have carried out and the
various valuation techniques which we have applied, do enable us to conclude
that from a financial point of view the terms of the Proposal are fair and
reasonable so far as the minority shareholders are concerned.
[KPMG LOGO] [WASTE MANAGEMENT, INTERNATIONAL PLC LOGO]
20
FAIRNESS OPINION
KPMG Corporate Finance
8 Salisbury Square
London EC4Y 8BB
Sir William Barlow, Messrs Jan Ekman and Giorgio Porta and Dr Manfred Scholz
(together "Independent Directors")
Waste Management Plc ("plc" or "Company")
3 Shortlands
Hammersmith International Centre
London W6 8RX
29 June 1998
Dear Sirs
You, the Independent Directors, have requested our opinion as to the fairness
from a financial point of view to the holders (other than Waste Management
Inc. ("Inc") and its subsidiaries) (the "Minority Shareholders") of the
outstanding ordinary shares, par value 10 pence per share (the "Minority
Shares") of plc, of the 345 pence per Minority Share in cash consideration
proposed to be paid to the Minority Shareholders by Inc (the "Proposal"),
details of which are set out in the attached draft news release. As of today's
date, Inc is the holder of approximately 80% of plc ordinary shares.
KPMG Corporate Finance, as part of its investment banking and corporate
finance advisory business, is engaged in the valuation of businesses and their
securities in connection with, inter alia, mergers and acquisitions,
disposals, private placements and valuations. We are acting as financial
adviser to the Independent Directors in connection with, and have participated
in certain of the negotiations leading to, the Proposal.
[KPMG LOGO] [WASTE MANAGEMENT, INTERNATIONAL PLC LOGO]
21
FAIRNESS OPINION (CONT.)
In connection with this opinion, we have:
- - reviewed the financial terms and conditions of the Proposal;
- - reviewed certain historical business and financial information relating to
the Company;
- - reviewed certain internal financial analyses and forecasts for the Company
prepared by its management;
- - held discussions with members of the senior management of the Company
regarding its past and current business operations, financial condition and
future prospects;
- - reviewed the reported price and trading activity for the ordinary shares;
- - visited certain of the facilities of the Company;
- - compared certain financial and stock market information for the Company
with similar information for certain other companies the shares of which are
publicly traded,
- - reviewed the financial terms of certain business combinations in the waste
industry specifically and in other industries generally; and
- - performed such other studies and analysis as we considered appropriate.
In light of Inc's position as the majority shareholder in the Company and the
absence of any indication that Inc would support either a sale of the Company
or other alternatives to the Proposal involving a third party, an active
solicitation of third party interest in a transaction involving the Company is
not practicable and therefore has not been pursued.
[KPMG LOGO] [WASTE MANAGEMENT, INTERNATIONAL PLC LOGO]
22
FAIRNESS OPINION (CONT.)
We have relied upon the accuracy and completeness of all the financial
information and other information reviewed by us and have assumed such
accuracy and completeness for the purposes of rendering this opinion. We have
not performed any independent verification of this information. In addition,
we have not made an independent evaluation or appraisal of the assets and
liabilities of the Company and we have not been furnished with any such
evaluation or appraisal. Our advisory services and the opinion expressed
herein are provided for the information and assistance of the Independent
Directors in connection with their consideration of the transaction
contemplated by the Proposal and such opinion does not constitute a
recommendation as to how any holder of ordinary shares should vote or act with
respect to such transaction.
In rendering our opinion, we have assumed that the Proposal will be
consummated on the terms stated in the draft news release attached, without
any waiver of any material terms or conditions by the Company and that
obtaining any necessary regulatory or third party approvals will not have an
adverse effect on the Company.
KPMG Corporate Finance is acting as financial adviser to the Independent
Directors in connection with the Proposal and will receive a fee for its
services, a portion of which is contingent upon consummation of the Proposal.
Based on and subject to the foregoing:
- - we are of the opinion that the consideration is fair to the Minority
Shareholders from a financial point of view, and
- - we consider the terms of the Proposal to be fair and reasonable so far as
the Minority Shareholders are concerned.
Yours faithfully
KPMG Corporate Finance
[KPMG LOGO] [WASTE MANAGEMENT, INTERNATIONAL PLC LOGO]
23
[KPMG LOGO]
Confidential
------------------------------------------------------
WASTE MANAGEMENT, INC.
Presentation to Board of Directors Regarding
Project Phoenix
[MERRILL LYNCH LOGO]
June 29, 1998
TABLE OF CONTENTS
- ------------------------------------------------------------------------------
1. Overview of the Proposed Transaction
2. Valuation Overview
3. Pro Forma Analysis
Appendix
WASTE MANAGEMENT, INC.____________________________________[MERRILL LYNCH LOGO]
- ------------------------------------------------------------------------------
OVERVIEW OF THE PROPOSED TRANSACTION
- ------------------------------------------------------------------------------
OVERVIEW OF PROPOSED TRANSACTION
- ------------------------------------------------------------------------------
SIGNIFICANT TERMS
PRICE - 3.45 Pounds Sterling per ordinary
share or $11.50 per ADR in cash
(based on exchange rate of $1.6673 =
1 Pound Sterling as of 6/23/98)
- Offer Value: $432 million(a)
IMPLIED PREMIUM - 35% over the closing price the day
before agreement was reached
(6/22/98)
- 39% over the average closing price
for the 30 days before agreement
(6/22/98)
- 80% over the closing price the day
before the WMX/UW announcement
(3/10/98)
IMPLIED MULTIPLES(b) 1997 1998E 1999E
---- ----- -----
- Revenue 1.4x 1.6x 1.3x
- EBITDA 6.6x 7.7x 6.0x
- EBIT 10.8x 13.4x 9.9x
- Net income(c) - Merrill Lynch Research 24.7x 19.8x
- Net Income(c) - Management projections 18.1x 21.1x 15.3x
ACCOUNTING TREATMENT - Purchase Accounting
- Minority interest is eliminated
FORM OF TRANSACTION - Scheme of Arrangement in U.K.
- Going private transaction in U.S.
(13 - e3 filing required)
CERTAIN CONDITIONS FOR CONSUMMATION - Recommendation by WME independent
directors
- Approved by the U.K. High Court
- Subject to minority shareholder vote:
50% of minority holders voting
(representing at least 75% of voted
shares) must approve.
- Customary conditions including
regulatory approvals and absence of
material adverse changes
- --------------------
(a) Based on 20% of the 187.6 million ADRs outstanding, equivalent of 375.2
million ordinary shares.
(b) Based upon implied WME enterprise value of $2,480 million and implied WME
equity value of $2,158 million (187.6 ADR equivalents).
(c) Net income in U.K. GAAP before non-recurring items.
WASTE MANAGEMENT, INC.____________________________________[MERRILL LYNCH LOGO]
1
TRANSACTION RATIONALE
- ------------------------------------------------------------------------------
- - Repurchasing WME minority interest is the final step in eliminating Waste
Management's public subsidiary structure.
- - Transaction is consistant with Waste Management strategy:
- Focused global waste services provider
- Simplifies corporate/operational structure and reduces costs
- Allows full utilization of WME cash flow to pursue growth opportunities
and manage debt levels
- - Transaction can be completed with minimal impact to EPS or credit rating
WASTE MANAGEMENT, INC.____________________________________[MERRILL LYNCH LOGO]
2
- ------------------------------------------------------------------------------
VALUATION OVERVIEW
- ------------------------------------------------------------------------------
OVERVIEW OF MANAGEMENT PROJECTIONS
- ------------------------------------------------------------------------------
- - WME management provided standalone financial projections for 1998-2002
- 1998 forecasts based on country level budgets with certain top-level
adjustments overlaid
- 1999-2002 projected by WME corporate management
- - Key projection, assumptions include:
- Annual pricing increases of 1-3% in most markets
- Annual volume increases of 2-3% in most markets
- Annual operating efficiency gains of 1-2% in most markets
- Substantial acquisitions over the projection period
- $290 million of revenue acquired in next 5 years
- $435 million aggregate cost of acquisitions
- 5.5x pro forma EBITDA acquisition multiple
- - Areas of risk in the standalone projection include:
- Ability to improve the performance of WME's Italian operations
- Ability to achieve projected price, volume and efficiency gains
- Ability to complete acquisitions at attractive prices
- Wessex Water call option on UK Waste
- - Opportunities for cost reduction due to the transaction include:
- $15 million of estimated cost reductions related to relocating /
eliminating functions currently performed by WME's London office
have been identified but were not included in the standalone
projections
- $11 million of estimated cash costs to implement cost savings plans
- Several potential tax benefits have been identified but have not
been factored into the standalone projections
WASTE MANAGEMENT, INC.____________________________________[MERRILL LYNCH LOGO]
3
OVERVIEW OF MANAGEMENT PROJECTIONS
- ------------------------------------------------------------------------------
Standalone Revenue Components
1998 1999 2000 2001 2002
------ ------ ------ ------ ------
Base(a) $1,544 $1,536 $1,536 $1,536 $1,536
Volume $ - $ 35 $ 70 $ 105 $ 140
Price $ - $ 28 $ 59 $ 92 $ 127
Acquisitions $ - $ 98 $ 209 $ 341 $ 486
Currency Translation $ - $ 156 $ 167 $ 180 $ 194
------ ------ ------ ------ ------
Total $1,544 $1,853 $2,041 $2,254 $2,483
====== ====== ====== ====== ======
- --------------
(a) Change in base revenue is attributable to disposition of Latin American
assets.
WASTE MANAGEMENT, INC.____________________________________[MERRILL LYNCH LOGO]
4
OVERVIEW OF MANAGEMENT PROJECTIONS
- ------------------------------------------------------------------------------
Standalone EBITDA Components
1998 1999 2000 2001 2002
----- ---- ---- ---- ----
Base(a) $321 $325 $323 $325 $326
Volume $ - $ 8 $ 16 $ 24 $ 31
Price $ - $ 6 $ 13 $ 19 $ 27
Efficiencies $ - $ 14 $ 29 $ 48 $ 60
Acquisitions $ - $ 25 $ 58 $ 97 $141
Currency Translation $ - $ 34 $ 38 $ 43 $ 47
---- ---- ---- ---- ----
Total $321 $412 $477 $556 $632
==== ==== ==== ==== ====
WASTE MANAGEMENT, INC.____________________________________[MERRILL LYNCH LOGO]
5
OVERVIEW OF MANAGEMENT PROJECTIONS
- ------------------------------------------------------------------------------
Summary of Standalone Projections
(Dollars in millions)
HISTORICAL FYE PROJECTED FYE
------------------------ ------------------------------------------- 1997-2002 1998-2002
1995 1996 1997 1998P 1999P 2000P 2001P 2002P CAGR CAGR
------ ------ ------ ------- ------- ------- ------- ------- --------- ---------
REVENUE $1,969 $2,032 $1,813 $1,544 $1,853 $2,041 $2,254 $2,483 6.5% 12.6%
% Growth 3.2% -10.8% -14.9% 20.0% 10.2% 10.4% 10.2%
GROSS PROFIT $ 485 $ 475 $ 402 $ 333 $ 421 $ 485 $ 564 $ 643 9.8% 17.9%
% of Sales 24.7% 23.4% 22.2% 21.6% 22.7% 23.7% 25.0% 25.9%
EBITDA $ 421 $ 438 $ 375 $ 321 $ 412 $ 477 $ 556 $ 632 11.0% 18.4%
% of Sales 21.4% 21.6% 20.7% 20.8% 22.2% 23.4% 24.7% 25.5%
EBIT $ 235 $ 236 $ 197 $ 150 $ 212 $ 258 $ 318 $ 374 13.7% 25.7%
% of Sales 12.0% 11.6% 10.6% 9.5% 11.0% 12.3% 13.7% 14.6%
NET BEFORE MINORITY INTEREST(a) $ 107 $ 120 $ 123 $ 89 $ 128 $ 157 $ 193 $ 229 13.2% 26.6%
MINORITY INTEREST $ 26 $ 31 $ 37 $ 22 $ 27 $ 29 $ 33 $ 37 0.5% 14.9%
NET INCOME(a)
U.S. GAAP $ 81 $ 89 $ 87 $ 68 $ 102 $ 128 $ 160 $ 192 17.3% 29.8%
U.K. GAAP $ 119 $ 129 $ 119 $ 102 $ 141 $ 169 $ 205 $ 239 15.0% 23.7%
EPS(a)
U.S. GAAP $ 0.43 $ 0.47 $ 0.46 $ 0.36 $ 0.54 $ 0.68 $ 0.85 $ 1.02 17.3% 29.8%
U.K. GAAP $ 0.64 $ 0.69 $ 0.63 $ 0.54 $ 0.75 $ 0.90 $ 1.09 $ 1.28 15.0% 23.7%
- --------------------
(a) Excludes unusual and non-recurring items.
WASTE MANAGEMENT, INC.____________________________________[MERRILL LYNCH LOGO]
6
VALUATION SUMMARY
- ------------------------------------------------------------------------------
U.S. Dollar Value Per ADR
DCF PUBLIC COMPARABLES
--------------------------------- -------------------------------------
Discount Rate 11.0%-13.0% Forward EDITDA(a) 1999 P/E(c)
Terminal EDITDA Multiple 6.5x-7.5x 5.9x - 7.9x 14.6x - 21.4x
--------------------------------- ----------------- -------------
No Cost Savings With Cost Savings(b) No Cost With Cost No Cost With Cost
With No With No Savings Savings Savings Savings
Acquisitions Acquisitions Acquisitions Acquisitions $321 $336 $141 $151
------------ ------------ ------------ ------------ ------- ------- ------- -------
SELECTED MULTIPLE
METHOD
Implied Value
per ADR $14.35 $12.75 $14.90 $13.25 $11.80 $12.45 $16.05 $17.25
Premium to ADR
Price on 6/22/98 % % % % % % % %
WME PROJECTED
MEASURES
Implied Value
per ADR $11.20 $10.20 $11.60 $10.60 $ 8.40 $ 8.85 $10.95 $11.75
Premium to ADR
Price on 6/22/98 % % % % % % % %
ACQUISITION COMPARABLES
-----------------------
EBITDA(a)
6.5x - 7.5x
-----------------------
1998 EBITDA 1998 EBITDA
No Cost Savings With Cost Savings(b)
$321 $336
--------------- --------------------
SELECTED MULTIPLE
METHOD
Implied Value
per ADR $11.10 $11.70
Premium to ADR
Price on 6/22/98 % %
WME PROJECTED
MEASURES
Implied Value
per ADR $ 9.40 $ 9.95
Premium to ADR
Price on 6/22/98 % %
- --------------------
(a) Assumes net debt of $322 million as of May 31, 1998, with minority
interest included on U.K. GAAP basis.
(b) Assumes $15 million of annual pre-tax cost savings.
(c) Net income is U.K. GAAP before non-recurring expenses.
WASTE MANAGEMENT, INC.____________________________________[MERRILL LYNCH LOGO]
7
- ------------------------------------------------------------------------------
PRO FORMA ANALYSIS
- ------------------------------------------------------------------------------
PRO FORMA IMPACT
- ------------------------------------------------------------------------------
Accretion/Dilution & Credit Analysis
Accretion / Dilution - WMX Perspective (a) 1998 1999 2000
---- ---- ----
$ Accretion / (Dilution) Per WMX Share ($0.02) ($0.00) $0.01
% Accretion / (Dilution) Per WWX Share -2.3% -0.2% 0.5%
Pro Forma Savings to Break-Even ($MM) $14.5 $ 1.6 NM
Pro Forma WMX Credit Statistics (b) Pre-Deal Pro Forma
-------- ---------
EBITDA Interest Coverage 6.2x 5.7x
Debt / EBITDA 2.7x 2.9x
Debt / Book Capitalization 71% 75%
(a) Analysis is based upon 475 million shares outstanding after reissuance
of 20 million treasury shares in June 1998 and First Call EPS estimates.
(b) Analysis is based upon 1998E EBITDA and Waste Management capitalization
as of 3/31/98 pro forma for reissuance of 20 million treasury shares in
June 1998.
WASTE MANAGEMENT, INC.____________________________________[MERRILL LYNCH LOGO]
8
- ------------------------------------------------------------------------------
APPENDIX
- ------------------------------------------------------------------------------
COMPARABLE COMPANY TRADING ANALYSIS
- ------------------------------------------------------------------------------
Selected European Waste Services Companies
Price Market Market LTM
Waste Services Ticker 6/24/98 Value Cap(a) Sales
- -------------- ------ ----------- -------------- -------------- --------------
Shanks & McEwan Group PLC SMG (Pounds) 1.905 (Pounds) 380.6 (Pounds) 444.9 (Pounds) 176.7
Waste Recycling Group PLC WRC (Pounds) 4.665 (Pounds) 217.5 (Pounds) 226.0 (Pounds) 27.2
Waste Management International WME $8.50 $1,594.9 $1,917.1 $1,813.3
SITA (Ste Ind. Transport Auto SA)(f) STA FRF 1,520 FRF 17,177.3 FRF 24,474.3 FRF 17,000.0
Market Value as a Multiple of: Market Cap. as a Multiple of:
---------------------------------------- ---------------------------------------------
LTM Net 1998 1999 LFQ LTM LTM FORW. +1 FORWARD LTM
Waste Services to Common EPS(b) EPS(b) Book Value EBIT EBITDA EBITDA(c) EBITDA(c) Sales
- -------------- --------- ------ ------ ---------- ---- ------ --------- --------- -----
Shanks & McEwan Group PLC 22.9x 21.8x 18.3x 6.2x 16.2x 10.2x n/a 6.9x 2.5x
Waste Recycling Group PLC 41.9* 35.1* 31.2* 6.6* 26.3* 20.1* 15.6* 17.1* 8.3*
Waste Management International 13.4 18.2 14.6 2.3 9.8 5.1 5.5 5.9 1.1
SITA (Ste Ind. Transport Auto SA)(f) n/a 27.2 21.4 3.9 n/a n/a 7.0 7.9 1.4
Mean(e) 18.2x 22.4x 18.1x 4.1x 13.0x 7.7x 6.2x 6.9x 1.7x
Median(e) 18.2x 21.8x 18.3x 3.9x 13.0x 7.7x 6.2x 6.9x 1.4x
1998 P/E
Growth to Growth
Waste Services Rate(d) Rate
- -------------- ------- ---------
Shanks & McEwan Group PLC 12.5% 1.74
Waste Recycling Group PLC 19.0%* 1.85*
Waste Management International 10.0% 1.82
SITA (Ste Ind. Transport Auto SA)(f) 15.0% 1.81
Mean(e) 12.5% 1.79
Median(e) 12.5% 1.81
(a) Market Cap. = Market Value + Preferred Equity + Total Debt + Minority
Interest - Cash and Marketable Securities.
(b) Earnings estimates for SMG & STA obtained from First Call as of 6/8/98.
Estimates for WRC obtained from I/B/E/S. Estimates for WME obtained from
4/29/98 Merrill Lynch research.
(c) EBITDA Estimates obtained from: 3/5/98 ABN-AMRO research (SMG - 3/99),
2/13/98 Credit Lyonnais research (STA - 12/98), 9/25/97 NatWest research
(WRC - 12/98), 4/29/98 Merrill Lynch research (WME - 12/98)
(d) Growth rates obtained from: 3/5/98 ABN-AMRO research (SMG 4yr), 2/13/98
Credit Lyonnais research (STA 5yr), 9/25/97 NatWest research (WRC 3yr),
4/29/98 Merrill Lynch research (WME 5yr)
(e) Summary statistics exclude figures marked w/(*)
(f) SITA information is pro forma for acquisition of non-U.S. assets of BFI
based upon information from Credit Lyonnais research dated 2/13/98 and a
company investor presentation.
* Amounts excluded from Mean and Median calculations.
WASTE MANAGEMENT, INC.____________________________________[MERRILL LYNCH LOGO]
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COMPARABLE TRANSACTION ANALYSIS
- ------------------------------------------------------------------------------
Selected European Waste Services Transactions
Date Date Transaction Offer
Announced Effective Target Acquiror Value(a) Value
- --------- --------- ---------------------------------- -------------------------- ----------- -----------
2/25/98 3/27/98 Page; Sobry; Fusiman; Vancopenolle Shanks & McEwan 73.4 67.2
12/12/97 12/12/97 Terry Adams Ltd South West Water 102.3(b) 105.0(b)
11/10/97 3/31/98 Browning Ferris Inds. - Int'l Ops. SITA (Suez Lyonnais) $1,680.7 $1,350.7
8/28/97 11/24/97 Leigh Interests General Utilities (CGE) 171.5 117.4
9/20/94 3/23/95 Attwoods Browning Ferris Industries 491.9 391.1
1/26/93 1/26/93 Waste Management Ltd. (NFC) Wessex Waste Management 113.0(f) 90.6(f)
10/16/91 10/16/91 Wimpey Waste Management Wessex Waste Management 105.0 88.7
5/13/91 5/13/91 Biffa (BET) Severn Trent 212.0 212.0
Mean(g)
Median(g)
Transaction Value as Multiple of: Offer Value as Multiple of:
------------------------------------- -------------------------------
Date LTM LTM LTM Forward LTM Forward Book
Announced Sales EBIT EBITDA EBITDA Net Net Equity
- --------- -------- ------ ------- ------- -------- -------- --------
2/25/98 1.33x 9.1x -- -- -- -- --
12/12/97 5.47x* 11.7x* 9.7x* -- 16.7x* -- 10.0x*
11/10/97 1.37x(c) -- 7.0x(c) 7.0x(d) 29.4x(c) -- 4.1x(c)
8/28/97 1.49x 15.0x 6.5x 6.2x(e) 25.4x 20.0x(e) 1.7x
9/20/94 1.35x 16.3x 7.5x -- 27.9x -- 4.1x
1/26/93 3.69x 25.7x -- -- -- -- --
10/16/91 2.99x 24.4x -- -- -- -- 3.4x
5/13/91 2.07x 11.9x -- -- -- -- 2.5x
Mean(g) 2.04x 17.1x 7.0x 6.2x 27.6x 20.0x 3.2x
Median(g) 1.49x 15.6x 7.0x 6.6x 27.9x 20.0x 3.4x
- ------------------------------------------------------------------------------
(a) Transaction Value = Market Value + Preferred Equity at Liquidation Value
(Incl. Redeemable) + Short-Term Debt + Long-Term Debt + Minority Interest
- Cash & Marketable Securities
(b) Assumes 28.0m paid based on certain landfill applications being approved
(c) Based on Browning-Ferris Merrill Lynch equity research dated 11/12/97
(d) Based on Credit Lyonnais research dated 2/13/98
(e) Based on Dresdner Kleinwort Benson Research dated 6/19/97
(f) Includes 15m to be paid over three years after the transaction
(g) Summary statistics exclude figures marked w/(*)
* Amounts excluded from Mean and Median calculations.
WASTE MANAGEMENT, INC.____________________________________[MERRILL LYNCH LOGO]
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