 Biffa is believed to have a market value of around 1.2 billion |
The Board of Severn Trent plc announced today that it intends to demerge Biffa, creating two separate companies – Severn Trent plc and Biffa plc.
Biffa, which is believed to have a market value in the order of 1.2 billion, will now gain its own dedicated board of directors.
The decision to demerge remains subject to shareholder approval and due diligence proceedings, but Severn Trent said it expected the demerger to be completed by the end of 2006.
Severn Trent is also considering the options for Biffa Belgium, it added, which might include a sale.
Review
Colin Matthews, chief executive of Severn Trent Plc, said: “When I took over as group chief executive in February 2005, I said that the new management team would concentrate for 12 to 18 months on improving all our businesses, particularly water and waste. Our review demonstrated that the growth and regulation drivers of the two businesses are very different and that few operational synergies would be lost through separate ownership.
“The Board has therefore concluded that shareholders, customers and employees would be best served by the creation of two independently quoted businesses,” Mr Matthews said.
Trading
Along with today's demerger announcement, Severn Trent issued a trading update detailing Biffa's financial performance. The company said a “flat market” had seen profits before tax increasing 8% in the first half of 2005/06 with expectations of further progress in the rest of the year.
The company said Biffa's turnover had grown by 78.9 million – a growth of about 10-15% – with the collection division, landfill division and special waste division all expected to contribute to improved profitability year on year, Severn Trent said.
Mr Matthews concluded: “Severn Trent and Biffa are both leading companies in their separate industries and will continue to benefit from scale and development opportunities. Shareholders will have greater choice and the opportunity to invest in two businesses with different investment characteristics. Following the conclusion of our review, I shall provide more details of the demerger and our overall Group strategy at our Results Presentation on Tuesday 6 June.”
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Turbulence
The demerger of Biffa from Severn Trent came during a period of considerable turbulence within the UK waste management market. Rival waste management giant Cleanaway UK has been put up for sale by its parent group, Australian firm Brambles, while recent years have seen a lot of activity by private equity groups in acquiring businesses in the waste industry.
Speculation within industry suggests Biffa could now face a full acquisition before being listed on the stock exchange as a separate entity. However, because of its size, any move to buy Biffa on the part of other large players would be likely to attract the attention of the competition authorities.
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