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Veolia Divests to Reduce Debt

Zacks Equity Research

Veolia Environnement S.A.’s (VE) subsidiary Veolia Environmental Services North America has entered into an agreement, worth $1.909 billion, with Star Atlantic Waste Holdings II, L.P., a unit of Highstar Capital, to sell its U.S. solid waste activities. This transaction is subject to U.S. anti-trust authority approvals and expected to be completed within this year.

Veolia plans to utilize the net proceeds of this agreement to repay its outstanding debt. The rest of the amount will be deployed to strengthen the company’s hazardous waste and industrial services business. As a result, the company expects its net financial debt to decline by $1.820 billion from $18.42 billion as of March 31, 2012. This will subsequently enable the company to minimize its interest burden.

This transaction is an important step towards Veolia’s pre-announced asset divestment program of $6.14 billion, which the company expects to complete by 2013. At the same time, the company also plans to reduce its net financial debt level to less than $14.7 billion within 2013 and reduce cost of operations. To execute this program, the company has already taken its first significant step. On June 28, 2012, Veolia’s unit Veolia Water UK PLC sold its UK regulated water activities to Rift Acquisitions Limited for a price of $1.9 billion. The company utilized part of the net proceeds, around $1.8 billion, to repay its debt.

Based in France, Veolia Environnement is a provider of environmental management services to its worldwide consumers. It operates through three segments namely Water, Environmental Services, and Energy Services.

During Veolia’s fiscal 2011 earnings results in March 2012, the company had announced a dividend payout of approximately 86 cents per share for both fiscal year 2011 and 2012, which are scheduled to be paid in 2012 and 2013. The company also provided a business outlook beyond 2013. The company forecasts organic revenue growth of 3% per year from 2013, while adjusted operating cash flow is expected to be over 5% per annum.

Veolia Environnement S.A. currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. The company competes with Connecticut Water Service, Inc. (CTWS) and American Water Works Company, Inc (AWK).

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