Waste Management sees growth turning trash to energy

Waste Management Inc., the largest U.S. trash hauler, is in talks to build waste-to-energy plants in China as part of an expansion that would double its revenue from power generation.

Waste Management submitted a proposal to build and operate the plants with a subsidiary of Shanghai Chengtou Holding Co., Chief Executive Officer David Steiner said in an interview yesterday in New York. The Houston-based company is competing with Veolia Environnement SA and Suez Environnement SA, 35 percent owned by GDF Suez, for the projects, which would mark the first step toward building energy revenue to about 20 percent of Waste Management's sales, he said.

Energy generated by channeling landfill gas and incinerating garbage is already helping Waste Management weather a global recession that has slashed revenue in other divisions. The company, which had $480 million in cash and equivalents at the end of 2008, may make more than $250 million in acquisitions this year in solid-waste, mainly "tuck-in assets" it can easily assimilate. Waste Management also plans expansion in waste-to-energy and medical waste, said Steiner, 48.

"I think it's time for us to start looking to grow," he said. "It happens to be at a time when there are lots of distressed assets out there."

China has estimated it will build more than 100 waste-to- energy plants within the next five years, Steiner said.

'Strong Demand'

"We think we ought to play in that arena," he said. "There's going to be strong demand from a bid perspective in both Europe and China, so we think we can grow by winning bids more than from acquisitions."

Waste Management withdrew its hostile $6.73 billion offer for Republic Services Inc. in October as credit markets froze, clearing the way for Republic to complete its purchase of Allied Waste Industries Inc. on Dec. 5.

Waste Management rose 12 cents to $26.10 at 12:23 p.m. in New York Stock Exchange composite trading. The shares have fallen 24 percent in the past year.

Waste Management's revenue from construction and demolition-debris removal fell by as much as 15 percent in the second half of 2008 as the recession halted residential and commercial real-estate projects, Steiner said. Still, energy sold to utilities and businesses helped boost Waste Management's total sales to $13.4 billion in 2008 from $13.1 billion in 2005, when housing prices peaked.

'Growth Engine'

Waste Management's waste-to-energy subsidiary, Wheelabrator Technologies Inc., whose plants incinerate garbage in chambers with water-filled walls to create steam power, will be the company's "primary growth engine internationally," Steiner said.

"To the extent that there's more interest globally in producing green energy, I'm not surprised they'd be going to where the opportunity is," Fitch Ratings Ltd. analyst Stephen Brown said in an interview. "Wheelabrator is well-established, so they'd have a compelling reason to be" winning projects overseas.

Waste Management is also bidding on three waste-to-energy projects in the U.K., Steiner said. The winning bidder would be paid a fee to design, build and operate the plants, each of which cost as much as $500 million to construct.

Wheelabrator Profit

Wheelabrator's operating income rose 11 percent to $323 million in 2008. That compares with operating income declines in three of Waste Management's North American waste-collection regions and a 5.8 percent increase in the fourth.

The Wheelabrator division "is probably a little less cyclical than what they've got in their waste-collection and landfill business," Brown said. "It's probably less cyclical than a lot of other industries for that matter."

Waste Management, Republic and some smaller competitors also produce energy by implanting landfills with wells that collect methane gas. A nearby facility draws, purifies and pressurizes the gas, then ignites it to run a turbine connected to a local electricity grid.

Waste Management has 110 such projects and plans to add more than 60 by 2012, part of the company's goal to produce enough power for 2 million homes by 2020.

Republic has identified 15 landfill sites on which the company plans to convert the gas into power, adding to the more than 60 such sites in operation now, Bill Held, Republic's senior director of renewable energy, said in an interview on March 23.

Steiner is also betting on medical waste acquisitions to guard revenue from cyclical downturns. The company may spend as much as $250 million during the next "two or three years" to become the second-largest handler of medical waste after Stericycle Inc., the chief executive said.

"If we have the medical waste assets, we'd be the only business that has the comprehensive offering" of solid-waste removal, recycling and medical, Steiner said. Hospitals "are looking for a competitor to Stericycle because Stericycle is the 800-pound gorilla and acts like the 800-pound gorilla."