UPDATE 3-Clean Harbors to buy longtime target Safety-Kleen for $1.25 bln

Mon Oct 29, 2012 1:47pm EDT

* Clean Harbors says deal to immediately add to earnings

* Says acquisition to boost oil re-refining services

By Swetha Gopinath

Oct 29 (Reuters) - Waste management company Clean Harbors Inc will buy Safety-Kleen Inc for $1.25 billion to expand into the business of recycling used motor oil, two years after the privately held firm rejected its initial bid.

The acquisition of Safety-Kleen, which also provides environmental services to motor races including NASCAR, will help Clean Harbors expand its solvent-recycling capabilities and broaden its waste treatment services.

Clean Harbors has long been interested in Safety-Kleen, a competitor and customer whose chemical services business it bought a decade ago.

Norwell, Massachusetts-based Clean Harbors proposed to buy Safety-Kleen for $13 per share in 2010 but the company sought more than $20 per share.

The latest offer equates to $24.50 per share based on Safety-Kleen's outstanding shares as of Aug. 31.

"Valuation of the deal looks attractive at 6.5 times earnings before interest, taxes, depreciation, and amortization especially given the strength of the business," said a Clean Harbors shareholder, who did not wish to be named.

Different customer focus should allow good scope for cross-selling, the shareholder said.

Safety-Kleen focuses on small-quantity generators compared with Clean Harbors, which typically caters to larger customers.

Safety-Kleen, which in August filed to raise up to $400 million from an initial public offering, counts Highland Capital Management, Contrarian Capital Management, JPMorgan Chase and GSC Acquisitions Holdings, as its top four investors.

"Safety-Kleen services over 200,000 customer locations, and we envision substantial cross-selling opportunities with its extensive customer base," Clean Harbors Chief Executive Alan McKim said.

Safety-Kleen, which had revenue of $1.3 billion last year, owns an oil re-refinery in Indiana with a capacity to process 120 million gallons of used oil annually, and a re-refinery near Kitchener, Ontario, with a capacity to process 40 million gallons.

Plans are underway to add another 10 million gallons of capacity to the Ontario plant in the fourth quarter, Clean Harbors CEO McKim said on a conference call with analysts.

Safety-Kleen, which operates a fleet of more than 2,300 vehicles and 1,000 rail cars, collects and processes about 200 million gallons of used oil annually.

There are 900 million gallons of used oil in the United States that can be captured, while government and regulatory pressure to increase re-refining has boosted the business.

Clean Harbors expects the all-cash deal, its biggest to date, to immediately add to earnings, excluding one-time fees and costs.

The company said it has received financing commitment from Goldman Sachs Bank USA but is also considering options that may include a combination of existing cash, debt and equity.

Credit Suisse served as the lead financial adviser to Safety-Kleen.

Clean Harbors's shares, which have fallen 14 percent in the last 12 months, closed at $49.44 on the New York Stock Exchange on Friday.

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