Two Bidders Remain for Essent Milieu

(Reuters) – Two bidders remain in the running to buy Dutch waste manager Essent Milieu, and are likely to submit final offers of less than 700 million euros ($965 million) in the coming days, sources said.

U.S. waste firm Covanta and the so-called “Orange” consortium are competing for Essent Milieu after a third suitor, private equity firm Paribas Affaires Industrielles (PAI), withdrew, a banker close to the deal said.

Both bids are likely to value Essent Milieu at less than 700 million euros, two people familiar with the matter said — although any buyer may also have to assume significant liabilities relating to landfill sites.

The all-Dutch “Orange” consortium comprises ABN AMRO Infrastructure Capital, NIBC Infrastructure Partners, and the two biggest Dutch pension funds, ABP and PGGM.

Essent Milieu is being sold by unlisted Dutch utility Essent. It initially drew interest from several private equity firms which managed to secure a 542.5 million euros ($747.8 million) staple financing package to back the purchase.

Earlier this year banking sources said Essent hoped to sell the unit for more than 1 billion euros — requiring private equity firms to contribute about half the purchase price as equity.

Both Covanta, which is being advised by JP Morgan, and Orange, which is advised by BNP Paribas, are finalising their financings, according to two bankers, who view Orange as the frontrunner due to its strong domestic orientation. Covanta is expected to finance the purchase through its balance sheet or a corporate loan, they said.

In an April conference call, Covanta Holding Corp’s Chief Financial Officer Mark Pytosh said it was looking to make up to $500 million of equity investments and had a “very active pipeline” of deals.

Some of the banks that provided the staple financing are considering joining the Orange consortium’s loan, they said, adding that would-be lenders to the Orange consortium will have to agree to pay a dividend yield to the equity provider.

The Orange consortium is lining up a 250 million euros infrastructure loan priced at about 350 basis points over EURIBOR and a longer maturity via BNP and HSBC to complement a bigger equity contribution, one of the two bankers said.

The size of the equity cheque and the staple financing left private equity funds struggling to make their internal rates of return on the deal and sponsors dropped out of the auction process.

“The debt was not the problem. There was no private equity at the end of it. They were either outbid or walked away,” the first banker said.

ING and Credit Suisse are advising Essent on the sale.

Essent declined to comment. The ABN fund did not return a request for comment. The NIBC fund declined to comment. Covanta was not immediately available for comment. ($1=.7254 euros) (Additional reporting by Michael Erman in New York; editing by Mike Nesbit)