Waste CEO says investors stifle growth

Waste Industries USA is being held back by its own shareholders, founder and Chairman Lonnie Poole Jr. told company directors in a letter made public Wednesday.

Poole and CEO Jim Perry are leading an effort to buy all shares of the Raleigh-based trash hauler and take it private. Waste Industries announced Tuesday that the group has offered to pay $36.75 per share to buy out other owners.

Poole contends that the move will free the company from the grip of investors.

"The company is constrained from growing more aggressively due to the intense focus by investment analysts and public shareholders on short-term, quarterly earnings," Poole wrote. "This intense focus creates an impediment to making long-term investments in the company's future that are necessary to sustain and enhance Waste Industries' franchise for many years to come."

Going private will also eliminate the cost and burden of maintaining public-company status with federal regulators, Poole wrote.

The decision followed several months of intense discussion and analysis with investment bankers and private equity firms regarding various expansion options.

"Jim Perry and I firmly believe a going private transaction is the most attractive for the company, its shareholders, employees, customers, vendors and the communities in which the company operates," Poole wrote.

His letter, marked "Highly Confidential," accompanied a company filing on the proposed takeover with the Securities and Exchange Commission.

Reached by phone Wednesday, Poole declined to comment.

According to the letter, members of the Poole family and Perry will invest $24 million in the buyout proposal, which still requires shareholders' approval. Private equity firm Macquarie Infrastructure Partners will invest $126.3 million in the deal, and investment bank Goldman Sachs will put in $63.2 million.

Wachovia Bank and HSBC Securities have agreed to provide a $269.6 million credit line to repay existing debt and partially fund the proposed takeover.

Poole's letter says the investor group has sufficient voting power to satisfy any shareholder-approval requirement needed to execute the deal and will oppose any competing offer. The per-share bid represents a 27 percent premium to Monday's closing price and is 35 percent more than the stock's five-year average price.

Shares of Waste Industries fell 45 cents Wednesday to close at $35.30.

Poole, who founded Waste Industries in Raleigh 1970, is a civil engineering graduate of N.C. State University and has an MBA from UNC-Chapel Hill. In 2002, he handed over the chief executive spot to Perry, also an NCSU alumnus.

In the letter, Poole says the company would remain based in Raleigh and would not undergo staff or operational changes as a result of the takeover.

At least one analyst believes the deal will not only happen but likely will benefit the company.

"We believe managing the business to try to meet and satisfy the short-term needs of the investment community was a bit more than management wanted to deal with," Chris Bamman, an analyst with Morgan Joseph & Co., wrote in a research note. "Going private allows shareholders to realize value sooner" and "alleviates pressure from the investor community toward the Poole family to sell some of their holdings to increase ... liquidity."

Because of the likelihood of the deal happening at the offered price, he advises investors to hold, not buy the company's stock.

Poole took Waste Industries public in 1997 to raise money to expand throughout the Southeast -- it has trash-collection operations in the Carolinas, Virginia, Tennessee, Mississippi and Georgia. But the company remains relatively small in sales and market value, and Poole determined that management could hasten expansion by dumping investors. Going private also frees company officers from having to disclose earnings and other financial matters to federal regulators.

"The significant regulatory costs and management resources expended to maintain the company's status as a modestly sized public company create a negative impact on the company's profitability and capital resources," he wrote.