WM (formerly Waste Management Inc.), Houston, is facing a potential class action lawsuit brought by Robbins Geller Rudman & Dowd LLP on behalf of investors who purchased redeemable senior notes between February 13, 2020 and June 23, 2020 , in the prior to WM’s acquisition of Advanced Disposal Services (ADS).
Filed June 9 in the U.S. District Court for the Southern District of New York, the case pits plaintiff United Industrial Workers Pension Plan against WM and several senior company executives, who the suit says violated portions of the Securities and Exchange Act of 1934.
A representative for WM’s media team said in an email that the company could not comment on the lawsuit at this time.
Relevant investments include the following callable senior notes issued by WM in May 2019: 2.95% senior notes due 2024, 3.20% senior notes due 2026, 3.20% senior notes .45% due 2029 and 4% senior notes due 2039.
On April 14, 2019, WM entered into an agreement and merger plan to acquire ADS for $4.9 billion, or $33.15 per share. Among other things, the merger required antitrust clearance from regulators, including the US Department of Justice (DOJ).
Knowing the deal raised antitrust concerns, WM agreed in the merger agreement to divest up to $200 million of the combined companies’ revenue-producing assets over a 12-month period, according to the legal complaint.
On May 14, 2019, WM issued $4 billion of senior notes in a public offering to fund the company’s acquisition of ADS. As described in the notes’ final prospectus, four of the five series, aggregating $3 billion in principal, were subject to a special mandatory redemption (SMR) feature in the merger agreement. The SMR clause required WM to repurchase the Notes at 101% of par if the merger was not completed by July 14, 2020, the end date provided for in the merger agreement.
In the notes prospectus, WM originally stated that the “merger will close by the first quarter of 2020,” according to the lawsuit. To address concerns raised by the DOJ, WM and ADS have entered into negotiations with several potential divestiture buyers, including GFL Environmental Inc., for the divestiture of assets above the $200 million antitrust revenue threshold.
The lawsuit alleges that, throughout the class period from February 13 to June 23, 2020, the defendants made false or misleading public statements and failed to disclose that the DOJ would compel the company to divest itself of assets. exceeding the $200 million antitrust revenue threshold; that as a result, the merger would not be completed by the July 14, 2020 deadline; and that the Notes would be subject to a mandatory redemption at 101% of par.
On June 24, 2020, WM announced that it and ADS had revised the terms of the merger and that WM had to divest more assets than previously disclosed to receive DOJ approval of the deal. The companies also agreed to sell $835 million in assets to try to satisfy antitrust regulators, including about $300 million to GFL. These assets had generated approximately $345 million in revenue in 2019.
Under the revised merger terms, WM agreed to buy ADS for $4.6 billion, or $30.30 per share, or $300 million less than the original price.
WM also revealed in June 2020 that the agreement was no longer expected to close until “the end of the third quarter of 2020” – six months later than represented by the defendants at the start of the class period and after the July 14, 2020 end date that triggered the ticket SMR refund feature.
Following this disclosure, ticket prices plummeted. The amount of the loss will likely be determined by a jury trial, which the United Industrial Workers Pension Plan requested, according to the lawsuit.
The acquisition of ADS was completed on October 30, 2020. Shortly before closing, the DOJ announced that WM would have to divest itself of 15 landfills, 37 transfer stations, 29 transportation sites, more than 200 collection routes waste and other assets to continue. with the acquisition of ADS. At that time, the DOJ said that without the divestiture, the acquisition would significantly reduce competition for small container commercial waste collection or municipal solid waste disposal services in more than 50 local markets.