Cleanaway's Purchase of Suez’s Entire Australia Footprint Unlikely, but Consolation Prize Attractive

We view the proposed acquisition by Cleanaway of no-moat Suez’s entire Australian waste management as unlikely. The mooted AUD 2.52 billion transaction is contingent on the failure of no-moat Veolia’s ongoing tender offer for Suez. But with the Veolia-Suez tie-up expected to proceed, it is improbable that Cleanaway will acquire Suez’s Australian operations in their entirety. Nonetheless, an attractive consolation prize exists for Cleanaway involving the purchase of a number of key metropolitan Sydney post-collection waste management assets. Cleanaway will pay AUD 501 million for the post-collection assets earmarked by Suez. With this ‘consolation’ deal expected to proceed--and shareholder value accretive given the deal's modest price tag--we raise our fair value estimate by 8% to AUD 1.95 per share. Shares in the no-moat name screen expensively, trading at a 31% premium to our revised valuation.