Struggling Trash Hauler Again Banks on a Buyout : Merger: After one acquisition fell through, Simi Valley’s GI Industries now wants to be bought by Western Waste Industries.
A year ago, GI Industries in Simi Valley had good news to report: Republic Waste Industries in Houston had tentatively agreed to buy GI for $3.50 a share, or a total of $15 million, in Republic Waste stock.
For Republic Waste--a company twice GI’s size--the purchase of GI was supposed to give it a beachhead in the Southern California waste-disposal market, because GI is the largest hauler of residential trash in eastern Ventura County with nearly 50,000 customers.
And for GI and its majority stockholders, the Asadurian family, the Republic Waste deal was supposed to relieve the financial problems hobbling the company, which serves Simi Valley, Moorpark and Thousand Oaks.
But GI’s problems only got worse. The company claims that--several weeks after the merger announcement--Republic Waste slashed its offer in half to only $7.5 million. Then early this year, Republic Waste decided it didn’t want GI at any price.
So GI last month went to federal court in Los Angeles, suing Republic Waste for alleged breach of contract and seeking $50 million in damages. (Republic Waste denies any wrongdoing and has its own suit pending against GI.) GI, however, could not count on the courts to help its ailing finances, so it had to seek another buyer.
It found one early this month, when Western Waste Industries in Gardena agreed to buy the 83% of GI it doesn’t already own for about $3.3 million in Western Waste stock and $300,000 in cash. Western Waste also would absorb GI’s main financial burden: the roughly $12 million in debt it has outstanding.
Western Waste, with revenue of $172 million in its fiscal year ended June 30, 1990, provides waste-disposal services in California, Texas, Arkansas, Louisiana, Florida, Colorado and Arizona. In the nine months ended March 31, the company’s profit jumped 20%, to $8.3 million, on an 18% gain in revenue to $149.9 million.
By acquiring GI, Western Waste not only solves GI’s financial problems, it also solves one of its own. Western Waste made a $4-million loan to GI two years ago, a loan that isn’t getting repaid. Indeed, accrued interest on the loan now brings GI’s indebtedness to Western Waste closer to $4.5 million.
Western Waste also has liens on GI assets that served as collateral for the loan, said Michael Smith, GI’s senior vice president. With those liens in place, GI has been unable to borrow more money from other lenders to refinance its total debt, he said.
GI’s trash operations remain profitable and generate nearly all of the company’s $16 million in annual revenue, but it’s “the substantial debt that we haven’t been able to recover from,” Smith said. “We aren’t able to pay back Western the money that we owe them.”
So Western Waste’s loan is a major reason why GI is hurting, and Western Waste’s takeover bid is apparently GI’s only means of stopping the pain.
“Unfortunately, that’s the only offer on the table at this point,” Smith said. He added, however, that “Western Waste is a good, aggressive, strong company that we’re happy to be with.” Western Waste not only plans to keep GI’s key personnel, but overall “there will be no layoffs” among GI’s 100 employees, Smith said.
Kosti Shirvanian, Western Waste’s chairman and largest stockholder with a 39% stake, said Western Waste didn’t try to put GI over a barrel. The $4-million loan, he said, was meant to help GI “sustain its business and to look for alternatives,” including various takeover proposals. He also said that Western Waste was ready to sell its 17% stake in GI to Republic Waste under its offer.
But Shirvanian said he is glad to get GI’s operation instead. “They’re in a very fast-growing part of Ventura County,” he said. “That would be a new area for us.”
Sadly for GI, the company is now struggling under its debt load even though it has cut its debt substantially since 1989, when the company got into major trouble because of a failed diversification attempt. The troubles were a marked change for the Asadurians, whose earlier success enabled them to buy sprawling homes and drive Rolls-Royces.
The family members include Manuel Asadurian Sr., his brother Sam, and their sons Manuel Jr. and Carl, respectively. Manny Sr., as he is called around the company, is GI’s chairman and Carl runs its Conejo Enterprises rubbish-hauling division. Sam and Manuel Jr. are no longer employed at GI.
GI had branched out into Thrifty car-rental franchises and three Mack truck dealerships. But the new units became mired in red ink, and together with the debt costs, GI overall has suffered combined losses of $14 million in its last four fiscal years, including a loss of $2.4 million on revenue of $15.7 million inits latest fiscal year ended April 30.
But beginning in 1989, the company began selling those assets and others, and trimming costs wherever possible. The actions enabled GI to cut its total debt to the current $12 million or so from $49 million in 1989. The remaining debt, however, still proved unsurmountable.
Ironically, GI first talked with Western Waste about a merger in 1989 before turning to Republic Waste’s offer. And the loan Western Waste made to GI developed out of those early merger talks. Republic Waste, incidentally, also would have paid off the Western Waste loan to GI under its merger proposal with GI.
Western Waste already has paid about $2 million to various investors in the past two years to accumulate its existing 17% equity stake in GI. The exact cost of its purchasing the remaining 3.6 million GI shares will depend on the value of Western Waste’s stock when the deal is closed.
Technically, the merger proposal calls for the four Asadurian family members who together own 48% of GI’s shares, along with GI’s Smith, to receive one Western Waste share for every 20 shares of GI stock they own. The rest of GI’s stockholders would get one Western Waste share and $4 cash for every 20 GI shares they hold.
The Asadurian group elected not to get any cash because “we wanted the outside stockholders to get more” in light of the collapsed deal with Republic Waste, Smith said.
GI’s current stockholders, including Western Waste, also could get additional proceeds if GI wins its legal case against Republic Waste, and provided any award is actually paid to GI. The award would be prorated to the holders, so Western Waste would get 17% of the cash.
Why did Republic walk away from GI? Some sources suggested that the deal was scuttled partly because Republic failed to raise as much money as it hoped when it made a stock offering last December.
Donald Koogler, Republic’s chief operating officer, denied the stock sale was a factor. Rather, he said, “after reviewing the financial stability of GI, it was concluded that we should not go forward.” Citing the lawsuits, he declined to elaborate.
