Pennon and Terra Firma vie for Shanks landfill assets

A carve-up of leading waste business Shanks is on the cards in a deal set to concentrate ownership of UK landfill capacity in fewer hands. The move reflects Shanks' difficulties in increasing landfill gate fees, particularly in relation to long-term municipal contracts.

Shanks has confirmed that it is in discussion with both Pennon Group and Terra Firma, the owner of Waste Recycling Group, about the sale of its landfill and landfill gas assets. In the UK, the deal would leave Shanks with collection, recycling and hazardous waste activities only.

The talks with Pennon over the sale - thought to be worth £200 million - are at an "advanced" stage, according to a Shanks press release issued on 17 May, although Terra Firma has also made two offers.

Terra Firma's first offer - which included preconditions that Shanks underwrote its costs and entered into exclusive negotiations for eight weeks - was rejected in light of Pennon's offer. Terra's second offer has no such preconditions and is significantly improved.

The sale is complicated by Terra's attempts to buy Pennon - whose assets include South West Water and Viridor Waste Management. A £1 billion bid for the company was rejected on 17 May.

For competition reasons, Terra Firma would not be able to buy both Shanks' landfill assets and Pennon.

Profits from Shanks' UK waste services division - which had sales of £233.6 million last year - have fallen significantly over the past two years. In 2002/03, the division's trading profits fell by £16.4 million to £19.7 million, largely because of a decline in its landfill business. Landfill volumes were down 13% "due to the diversion of special waste as a result of the landfill Directive and the policy of sacrificing volumes in pursuit of higher prices," according to the company's annual report.

Shanks is also over £300 million in debt, and its UK chemical services division is only just breaking even.

The possible sale comes only a month after Shanks announced that its UK chemical services and waste services divisions would be amalgamated. Former Sita boss Ian Goodfellow is the new managing director of Shanks' UK operations. Colin Brown, managing director of the chemical services division, recently left the company.

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