Cleanaway (ASX:CWY) share price swept up in >$2bn acquisition rumour

The Cleanaway Waste Management Ltd (ASX: CWY) share price isn't reacting much to rumours that it's about to acquire its largest rival.

| More on:
Western Areas takeover Mainstream share price takeover M&A bidding war asx shares asset sales and mergers and acquisitions represented by two business men playing tug of war with rope Cleanaway share price

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Cleanaway Waste Management Ltd (ASX: CWY) share price isn't reacting much to rumours that it's about to acquire its largest rival.

Shares in the waste management group dipped 1.3% to $2.21 in after lunch trade as the S&P/ASX 200 Index (Index:^AXJO) gave up a similar amount.

Investors don't seem to be impressed with speculation that it is closing in on a deal to buy the Australian arm of France's Suez SA (FRA: SZ1).

$2bn plus takeover spooks the Cleanaway share price

The Australian Financial Review quoted unnamed sources who claim that talks between the two parties were "advanced".

If a takeover offer eventuates, Cleanaway may need to cough up something north of $2 billion.

Little wonder that shareholders are dumping their shares as Cleanaway will probably need to undertake a sizable capital raising to fund the acquisition.

High risk, high rewards

ASX shares tend to come under pressure at the slightest whiff of a cap raise. This is because companies usually have to sell new shares at a discount to the market to attract fresh capital.

But Cleanaway has another issue if this large acquisition goes through. It will need to bed down the new business without its chief executive Vik Bansal.

Swallowing a large acquisition is challenging even in the best of times. The task will be much more complicated without the captain at the helm.

Chairman Mark Chellew is taking over the reins from Bansal, but he is only the acting captain. Cleanaway is asking would-be capital raising investors to stomach a lot of risk, and they will be wary of the general fact that most acquisitions fail to deliver value.

Cleanaway enters ugly takeover battle front

If walking this tightrope isn't precarious enough, Cleanaway may be entering into an ugly love/hate triangle.

Suez is fighting off a hostile €11.3 billion ($17.5 billion) takeover bid from fellow French rival Veolia Environnement SA (EPA: VIE). Veolia wants all of Suez, even its Aussie operations, and is threatening legal action to stop Suez from offloading assets.

Then there is the question of whether the Australian Competition & Consumer Commission (ACCC) would bless the marriage between Cleanaway and Suez Australia. The two are major players in the local market.

Foolish takeaway

The AFR reported that Cleanaway controls around 22.7% of Austraila's waste treatment and disposal services market. Suez's local arm is the next biggest with 18.3%, according to IBISWorld data.

But if Cleanaway can pull it off, its total revenue and earnings could jump by as much as 50%.

Talk about high stakes poker! Let's hope Cleanaway shareholders will leave the party with more than the shirts on their back.

Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. Connect with me on Twitter @brenlau.

The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Mergers & Acquisitions

The last piece of the jigsaw being fitted, indicating good news for a share price on merger or acquisition
Mergers & Acquisitions

WiseTech share price storms higher on $3.25b blockbuster acquisition

What is the company spending billions on? Let's find out.

Read more »

A woman sits at her computer with her chin resting on her hand as she contemplates her next potential investment.
Mergers & Acquisitions

IAG share price lifts off on strategic alliance approval

IAG shares are racing higher in Thursday’s sinking market.

Read more »

a group of business people sit dejectedly around a table, each expressing desolation, sadness and disappointment by holding their head in their hands, casting their gazes down and looking very glum.
Mergers & Acquisitions

This ASX 300 share is sinking 33% on takeover collapse fears

Is this takeover dead? Let's find out what is happening.

Read more »

A man holds his head in his hands, despairing at the bad result he's reading on his computer.
Mergers & Acquisitions

Why is this ASX 200 stock crashing 15%?

What has sent investors rushing to the exits? Let's find out.

Read more »

a woman drawing image on wall of big fish about to eat a small fish
Mergers & Acquisitions

Guess which ASX All Ords stock just received a takeover offer

A private equity firm has its eyes on this stock.

Read more »

Man with rocket wings which have flames coming out of them.
Mergers & Acquisitions

Guess which ASX stock just rocketed 21% on takeover news

Investors are piling into the ASX stock following a confirmed takeover offer.

Read more »

Miner looking at a tablet.
Mergers & Acquisitions

Gold Road shares surge 10% on $3.7 billion takeover offer

The ASX 200 gold stock is soaring after finding itself in the acquisition crosshairs.

Read more »

A corporate team or board stands together and looks out the window.
Technology Shares

WiseTech shares charge higher on $3.5b acquisition news

This tech stock is ending the week positively. But why?

Read more »