Investors are warming to waste management outfit Shanks’ (SKS) merger with van Gansewinkel (VG) for €440 million (£377 million), sending its shares up 9.5% to 88p.

The deal, expected to complete in September, will create a leading waste management business across the Benelux region, according to Shanks' management team.

'We are delighted to have reached agreement in principle with VGG on the terms of a proposed merger,' says Shanks chief executive Peter Dilnot.

'This is a truly transformational deal for Shanks.

'Our two businesses are highly complementary and a combination would create a leading Benelux waste-to-product business, with enhanced geographic coverage, capabilities and technologies as well as significant synergy potential.'

In 2015, VG posted revenues of €944.9 million, a decline of 1.8% on a year earlier, because of lower waste collection margins, operational delays and the disposal of the loss-making businesses.

Shanks already collects and treats hazardous and organic waste in the Netherlands and Belgium, and plans to adopt VG’s glass and electronic goods recycling capabilities.

Milton Keynes-headquartered Shanks' other operations are based in the UK and Canada. VG has additional businesses in Germany, Portugal, Hungary and France.

Part of Shanks’ strategy is to manage its portfolio to improve returns and accelerate growth through acquisition.

Benefits of the VG deal include the ability to optimise routes, improve recyclate income and reduce off-take costs.

Long-term savings may also be possible from reduced capital expenditure and lower landfill aftercare costs.

VG shareholders will receive €306 million in cash and own 29% of the combined group, while Shanks will hold the remaining 71%.

Shanks will fund the deal through a combination of new debt facilities, a £90 million rights issue and the issue of new shares to VG shareholders.

Return on investment from the deal will exceed the new entity's average cost of capital by the financial year ending 31 March 2019, according to Shanks' board.

Senior management from both businesses will be represented in the combined business and a new brand will be created.

Based on recent financial reports, Shanks and VG would have combined revenue of more than €1.7 billion and earnings before interest, tax, depreciation and amortisation (EBITDA) of €170 million.

Shanks' management has been assessing a takeover of GV since 2013, according to today's statement.

Issue Date: 07 Jul 2016