By press release dated January 26, 2018, Waste Control Specialists LLC (WCS) announced the completion of their sale by Valhi, Inc. (Valhi) to J.F. Lehman & Company (JFLCO) — a leading middle-market private equity firm focused on the government, defense, aerospace and maritime sectors.

Operations

WCS operates a comprehensive set of low-level radioactive waste treatment, storage and disposal facilities to service the needs of the United States nuclear industry.  The company’s disposal facilities in west Texas provide licensed capability for the disposal of Class A, B and C low-level radioactive waste, hazardous waste and byproduct material.

WCS has a strategic partnership with JFLCO portfolio company NorthStar Group Holdings, Inc. (NorthStar) — a leading provider of specialized environmental and technical services for commercial and government end markets — to support U.S. electric utilities in safely decommissioning nuclear power generation sites.

Acquisition

In a separate press release, Valhi stated that it has completed the sale of its WCS subsidiary to JFL-WCS Partners, LLC (JFL Partners) — an entity sponsored by certain investment affiliates of JFLCO — for “consideration consisting of the assumption of all of WCS’ third-party indebtedness and other liabilities.”   In addition, according to the Valhi press release, “all financial assurance obligations related to the WCS business, previously provided in part by Valhi and certain of its affiliates, have been assumed by WCS or one or more of its new affiliates.”

Evercore acted as financial advisor, while Jones Day and Pillsbury Winthrop Shaw Pittman acted as legal counsel, to JFLCO in regard to the acquisition.  The Carlyle Group’s Credit Opportunities Fund provided debt financing for the transaction.

Statements

Upon announcement of the acquisition, associated company executives issued the following statements:

• JFLCO Partner Alex Harman stated, “WCS is a unique asset that, together with our recent acquisition of NorthStar Group Services, will allow us to provide a complete and cost-effective decommissioning solution for U.S. nuclear utilities.” Hartman further stated, “WCS maintains an industry-leading reputation and provides an essential solution for the safe disposal of specialized waste streams.  We are excited to support the long-term success of the business through continued engagement and partnership with industry stakeholders, including strengthening the partnership with NorthStar to deliver a best-in-class nuclear power plant decommissioning solution.”

• “For the past 20+ years, WCS has provided state-of-the-art disposal capabilities from a rigorously-monitored, highly-engineered facility,” said Scott State, Chief Executive Officer (CEO) of NorthStar and WCS. “Given the substantial capital investment in the facility, the site maintains significant capacity for growth, and we remain committed to serving our customers as a trusted solutions provider.”  In a separate statement, State noted, “WCS strengthens the opportunity for our team to provide a game-changing nuclear decommissioning solution.  J.F. Lehman has a proven track record that will help WCS achieve it s strategic plan and support its continued growth.”  State added, “WCS looks forward to engaging utility and government customers to develop strategic solutions to long-term needs for treatment and disposal of radioactive waste, including a substantial expansion of WCS’ intake of Class A waste for disposal.”

• Incoming WCS President and Chief Operating Officer (COO) David Carlson stated, “WCS has a very good history of regulatory compliance, safety and service to the nuclear industry that we will continue to build on.”

• “Through its unique technical competencies and industry leadership, WCS exemplifies many of the values and attributes JFLCO emphasizes in its investment strategy,” commented Glenn Shor, Managing Director at JFLCO. “Our partnership with WCS will ensure that the business has the resources required to support its long-term growth strategy across the government and commercial marketplace.”

• “WCS has built the nation’s state-of-the-art facility for low-level radioactive waste disposal,” stated Valhi CEO Robert Graham. “We believe that this acquisition by J.F. Lehman, together with J.F. Lehman’s NorthStar Group Services portfolio company, will create significant opportunities for growth at WCS.”

Companies

WCS operates a West Texas facility for the processing, treatment, storage and disposal of a broad range of low-level radioactive and hazardous wastes that includes facilities for both government and commercial generators.

Valhi is engaged in the titanium dioxide products, component products (security products and recreational marine components) and real estate management and development industries.

JFLCO is a leading middle-market private equity firm focused primarily on the government, defense, aerospace and maritime sectors.  For more information about J.F. Lehman & Company, please visit www.jflpartners.com.

Background

Proposed Acquisition  On November 19, 2015, in separate press releases, it was announced that Rockwell Holdco had signed a definitive agreement to acquire WCS.  (See LLW Notes, November/December 2015, pp. 20-21.)  Rockwell Holdco is the parent company of EnergySolutions — which operates low-level radioactive waste disposal facilities in Tooele County, Utah and Barnwell, South Carolina.  Rockwell Holdco is owned by Energy Capital Partners, a private equity firm focused on investing in North America’s energy infrastructure.

According to the companies’ press releases, upon closing, Rockwell Holdco would pay $270 million in cash and $20 million face amount in Series A Preferred Stock.  In addition, Rockwell Holdco would assume approximately $77 million of WCS’ debt, as well as all financial assurance obligations related to the WCS’ business.

The Valhi Board of Directors and the Rockwell Holdco Board of Directors previously approved the purchase agreement.  However, completion of the sale — which was originally expected to close in the first half of 2016 — was subject to certain customary closing conditions as outlined in the transaction agreement.  In the meantime, EnergySolutions and WCS continued to operate as independent companies.

Antitrust Lawsuit  On November 16, 2016, the U.S. Department of Justice (DOJ) filed a civil antitrust lawsuit in the U.S. District Court for the District of Delaware seeking to block the proposed $367 million acquisition of WCS by EnergySolutions.  (See LLW Notes, November/December 2016, pp. 25-26.)  The United States of America was the plaintiff in the case.  The listed defendants included EnergySolutions, Inc.; Rockwell Holdco, Inc.; Andrews County Holdings, Inc.; and, Waste Control Specialists LLC.

DOJ argued that the proposed transaction “would combine the two most significant competitors for the disposal of low level radioactive waste … available to commercial customers in 36 states, the District of Columbia and Puerto Rico.”  In this regard, DOJ asserted that the proposed transaction “would deny commercial generators of … [low-level radioactive waste] — from universities and hospitals working on life-saving treatments to nuclear facilities producing 20 percent of the electricity in the United States — the benefits of vigorous competition that has led to significantly lower prices, better service and innovation in recent years.”

“Since opening its … [low-level radioactive waste] disposal facility in 2012, Waste Control Specialists has provided EnergySolutions the only real competition it has ever faced,” said Acting Assistant Attorney General Renata Hesse of the DOJ’s Antitrust Division.  “This competition has allowed customers to extract better prices and to receive better and more innovative service in the … [low-level radioactive waste] disposal industry.  If consummated, EnergySolutions’ proposed acquisition of Waste Control Specialists would make EnergySolutions the only option for customers in nearly 40 states.  And this at a time when projects worth billions of dollars are set to be awarded in the coming years.”

At the time of the filing of the lawsuit, DOJ contended that WCS provides the “only true competition” for EnergySolutions.  “That competition has led to increased innovation and lower prices for customers,” contended DOJ.  “EnergySolutions’ acquisition of Waste Control Specialists would eliminate that competition, with no likelihood of new entry to fill the void.”

Court Decision  On June 21, 2017, the United States District Court for the District of Delaware issued a Judgment and Order in the civil antitrust lawsuit seeking to block the proposed $367 million acquisition of WCS by EnergySolutions.

In its order, the district court entered judgment in favor of the plaintiffs and against the defendants, specifically enjoining and restraining the defendants “from carrying out the acquisition of Waste Control Specialists LLC by EnergySolutions, Inc. as memorialized in the merger agreement between Rockwell Holdco, Inc. and Andrews County Holding, Inc. dated November 18, 2015 and any amendments thereto.”

The case — which is listed as United States of America v. EnergySolutions, Inc.; Rockwell Holdco, Inc.; Andrews Country Holdings, Inc.; and, Waste Control Specialists — can be found under civil docket number 16-1056-SLR in the United States District Court for the District of Delaware.

For additional information, please contact Chuck McDonald for WCS at (512) 708-8655; Janet Keckeisen of Valhi at (972) 233-1700; or, Lisa Steffens of J.F. Lehman & Company at (212) 634-1150 or at lms@jflpartners.com.