Waste manager WM explores $3 billion sale of renewable natural gas unit

Waste management firm WM WM.N is exploring a sale of its renewable natural gas business that could be worth about $3 B, according to people familiar with the matter.

The Houston-based company is working with JPMorgan Chase & Co JPM.N to gauge interest from potential buyers, which could include energy companies and private equity firms, the sources said, requesting anonymity as the discussions are confidential.

WM is planning to offload the rights to develop RNG operations on 115 landfills that it owns, the sources said, adding the company would retain ownership of the landfills. RNG is methane captured from biological waste and converted into electricity or fuel.

If the deal talks conclude successfully, it would mark one of the biggest-ever asset sales in the nascent U.S. RNG industry. The largest sale was BP's $4.1-B takeover of Archaea Energy in 2022. "We are always looking for ways to maximize the value of our renewable energy business for our shareholders, which may range from organic growth initiatives to partnerships or monetization through a sale," WM said in a statement.

WM had planned to invest about $1.2 B between 2022 and 2025 to grow the RNG business. The firm now wants to spend that capital in other areas, the sources said.

The company had forecast the RNG unit would contribute more than $500 MM of adjusted earnings before interest, tax, depreciation and amortization (EBITDA) by 2026. It currently generates about $150 MM of EBITDA, according to the sources.

WM is hoping the unit's valuation would be comparable to, or exceed, the earnings multiple at which Morrow Renewables sold RNG operations at landfills to Enbridge ENB.TO in late 2023, the sources added. Should it meet that valuation, WM will get in the ballpark of $3 billion, the sources said.

RNG's environmental benefits include the reduction of natural gas usage and capturing climate-warming emissions that would otherwise escape into the atmosphere. However, it is more expensive than natural gas, which is also experiencing a period of prolonged low prices. 

WM, whose shares have risen by about 25% over the past year, is one of the largest U.S. trash and recycling collection companies. The firm's fleet includes more than 12,000 trucks running on compressed natural gas and it recently signed a sustainability partnership with Major League Baseball.

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