Hands reaches for Waste Recycling

Guy Hands emerged as the mystery bidder stalking Waste Recyling yesterday after it was disclosed that his private equity fund Terra Firma is poised to buy the company in a deal worth £565m.

Mr Hands, who left Nomura last year to strike out on his own, has agreed to buy the water company Kelda's 45.5 per cent stake in Waste Recycling for not less than 285p a share. This would value the equity of the company at £335m. Waste Recycling also has an estimated £230m in debt.

Mr Hands has also struck an exclusive agreement with Waste Recycling, which has undertaken not to solicit offers from any other bidders. The exclusive agreements run until 5 June. If Kelda decides to sell to a rival bidder it will have to pay Terra Firm a break fee of between £1.25m and £6m. If Waste Recycling chooses another bidder it will have to pay a break fee of £1m.

If Mr Hands pulls off the Waste Recycling acquisition, it will be his first big deal since going independent exactly a year ago. Since launching Terra Firma, he has raised a fund worth £1bn to finance acquisitions.

Shares in Waste Recycling soared 26 per cent on news of Mr Hands' approach to close 52.5p higher at 252.5p. They have gyrated violently since the company first disclosed it had received a bid approach in January. Initially the shares leapt but then they fell after the company issued a profits warning. Following this the original bidder, the private equity house Candover, pulled out of talks.

Shares in the rival waste group Shanks also shot up, ending the day 19 per cent higher at 87.5p.

Waste Recycling became the UK's biggest waste company in terms of volume of material handled after it merged with Kelda's waste division in 1998. It handles 11 million tonnes of household, commercial and industrial waste a year and has more than 100 sites including 62 landfill sites and six quarries.

However, it has been hit hard by the decline in manufacturing and was forced to issue an earlier profits warning last August.