THURSDAY,OCTOBER24,2019 | THEGLOBEANDMAILO REPORTONBUSINESS| B3
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AlbertaFinanceMinisterTravisToewsputsonapairofcowboybootsduring
aprebudgetphotoopinEdmontononWednesdayJASONFRANSON/THECANADIANPRESSCanadian waste management
companyGFL Environmental
Inc.has officially launched its
initial public offering, looking to
raise as much as US$2.4-billion
in one of Canada’s largest-ever
IPOs.
GFL originally filed the paper-
work for its IPO in July with
plans to sell US$1.5-billion worth
of shares to public investors in
the United States and Canada in
the fall.
On Wednesday, GFL an-
nounced that the marketing for
this share sale has commenced,
and gave a price range for the
offering.
The company said it will mar-
ket as many as 100.7 million
shares at US$20 to $24 each.
Canada has seen few IPOs of
this size. Ottawa’s sale of Cana-
dian National Railway in 1995
netted $2.2-billion, while Manu-
life Financial Corp. raised $2.5-
billion through its IPO in 1999.
GFL is selling into a hot mar-
ket for waste companies, with
major rivals Republic Services
Inc., Waste Management Inc. and
Waste Connections Inc. trading
at an average of 33 times their
earnings per share for the past 12
months. Anything more than 15
to 20 times earnings is consid-
ered unusual.
However, GFL has yet to dem-
onstrate its profit potential. Over
its past three fiscal years, the
company has lost a cumulative
$737-million, and in the first six
months of fiscal 2019, the com-
pany lost $161-million, according
to a regulatory filing from GFL
on Wednesday.
GFL has talked about going
public as far back as 2017. But its
plans seemed to change in early
2018, after BC Partners and Onta-
rio Teachers’ Pension Plan
bought it from its previous pri-
vate equity backers.
A few months later, GFL an-
nounced its largest acquisition to
date, buying North Carolina-
based Waste Industries for $3.65-
billion, including debt.
The company’s balance sheet
is now loaded with debt – both
from the 2018 deals, and from
borrowing to help fund acquisi-
tions over the years.
In April, the company issued
US$500-million worth of unse-
cured notes, and the securities
were rated Caa2 by Moody’s In-
vestors Service and CCC+ by
Standard & Poor’s – deep in junk
rating territory.
GFL intends to use some IPO
proceeds to reduce its debt, but
it will also direct some of the
funds to future acquisitions. The
company’s interest and other fi-
nancing costs amounted to $251-
million in the first half of fiscal
2019, larger than its total loss.
GFL, which stands for “Green
for Life,” was founded by Cana-
dian Patrick Dovigi, who is
known for his acquisitive mind-
set.
The North American waste
management industry has been
highly fragmented, and GFL has
sought to consolidate the mar-
ket. The purchase of Waste In-
dustries last year made GFL the
fourth-largest waste manage-
ment company in North Amer-
ica.
As part of its IPO, GFL is sell-
ing subordinate voting shares to
the public, meaning new inves-
tors will not have the same vot-
ing rights as some existing own-
ers – a common theme in recent
IPOs, particularly for technology
companies.
After the offering, Mr. Dovigi,
the chief executive, will hold all
of GFL’s multiple voting shares.
However, as long as BC Partners
has at least 15 per cent of the
company’s stock, Mr. Dovigi will
have to vote in line with the rec-
ommendations of the directors
BC has nominated to GFL’s
board.
BC Partners, Teachers and an-
other private equity backer, GIC
Private Ltd., will collectively con-
trol about 63 per cent of GFL’s
subordinate voting shares.
Aside from Mr. Dovigi, the
other individual with a signifi-
cant stake in GFL is Ven Poole,
the former CEO of Waste Indus-
tries.
He owns 9.9 million subordi-
nate voting shares, worth
US$218-million, at the midpoint
of marketing range for GFL’s IPO.
JPMorgan Securities, Goldman
Sachs, BMO Nesbitt Burns, RBC
Dominion Securities and Scotia
Capital are lead underwriters for
the IPO.GFLlaunches
initialpublic
offering,
aimstoraise
$2.4-billion
TIMKILADZECanadian Pacific Railway Ltd.reported a
small decline in third-quarter profit and a
4-per-cent rise in revenue on Wednesday,
even as overall North American rail
freight volumes decline amid an uncer-
tain economic outlook.
Calgary-based CP said profit for the
three months ended Sept. 30 was $618-
million, compared with $622-million in
the year-ago period. Measured on a per-
share basis, profit was up by 3 per cent to
$4.46, owing to a drop in the number of
outstanding shares. Revenue rose to
$1.98-billion. Analysts had expected per-
share profit of $4.48 and revenue of $1.99-
billion, according to Bloomberg.
On a conference call with analysts, CP
chief executive Keith Creel declined to of-
fer a forecast for 2020, but said he sees a
“clear path to growth.”
“We see an opportunity to move more
freight and drive more earnings,” he said.
In addition to economic uncertainty,
CP said it faced a range of headwinds that
weighed on freight volumes in the quar-
ter, from wet weather that delayed the
grain harvest to prolonged contract talks
among sellers and buyers that slashed the
amount of potash shipped by 15 per cent.
CP’s operating ratio, a measure of costs
compared with sales, improved to 56.1 per
cent.
CP released its results after markets
closed on Wednesday, a day after Mon-
treal-based rivalCanadian National Rail-
way Co.cut its full-year profit forecast and
said a weakening economy will hit freight
volumes. CN has idled railcars and loco-
motives, and given up leased office space
in Montreal, which helped boost third-
quarter profit by 8 per cent as revenue
rose by 4 per cent.
CP said it expects 2019
freight volume growth in the
low single digits, and is
standing behind its forecast
for double-digit growth in
adjusted per-share profit.
Growth in global econo-
mies is slowing, led by a soft-
ening U.S. manufacturing
sector. Trade tensions and
tit-for-tat tariffs have hurt
exports from the United
States, China and other trad-
ing partners, which has
slowed the flow of goods,
and threaten to dampen
consumer spending as tariffs
show up in retail prices.
The International Mone-
tary Fund last week cut its
2019 outlook for global economic growth
to 3 per cent from 3.3 per cent, the lowest
since the economic crisis of 2008-09. For
2020, the IMF reduced its forecast to 3.4
per cent growth from 3.5 per cent.
Much of the decline in economic
growth is due to a rise in uncertainty over
trade policies, said Nariman Behravesh,
chief economist of consultancy IHS Mar-
kit, pointing to the group’s research that
found the doubts have caused U.S. busi-
nesses to slash capital spending by
US$100-billion.“The pain is concentrated in the manu-
facturing sectors, where the exposure to
trade is the greatest,” Mr. Behravesh said.
Canadian railways have narrowly
avoided the slump in freight demand suf-
fered by their U.S. rivals. The combined
freight volume of CP and CN is up by less
than 1 per cent over the first 42 weeks of
2019, compared with the same period a
year ago, according to the
American Association of
Railroads, which includes
the railways’ U.S. operations.
However, five of 12 freight
types are down, and oil is
the only category that has
grown by more than 2 per
cent, posting an increase of
21 per cent.
CP’s revenue ton miles for
the three months ended
Sept. 30 declined by 1 per
cent, according to prelimi-
nary data from CP, while
carloads increased by 1.4 per
cent. In comparison, Virgin-
ia-based Norfolk Southern
Corp. on Wednesday said
revenue in the third quarter
fell by 4 per cent to US$2.8-
billion as freight volumes slumped by 6
per cent.
Freight carloads hauled by U.S. rail
companies have fallen by 4.2 per cent
over the same period. With the exception
of oil (up 15 per cent) and chemicals
(flat), every category of goods is lower.
The decline is led by a 7-per-cent drop in
carloads of coal, the biggest category for
U.S. railways.CANADIAN PACIFIC RAILWAY (CP)
CLOSE: $287.11, DOWN 55¢CPRailr eportsdecline
inprofit,riseinrevenue
Company’sthird-quarter
resultsboggeddownby
economicuncertainty,
problemswithfreightvolumes
ERICATKINSTRANSPORTATIONREPORTER
Tradetensionsand
tit-for-tattariffshave
hurtexportsfrom
theUnitedStates,
Chinaandother
tradingpartners,
whichhasslowed
theflowofgoods,
andthreatento
dampenconsumer
spendingastariffs
showupinretail
prices.WeWork’s new executive chairman Marce-
lo Claure on Wednesday defended huge
payouts to the office-sharing company’s
founder Adam Neumann and said there is
now “zero risk of the company going
bankrupt,” according to an audio record-
ing of a meeting he held with employees
that was reviewed by Reuters.
The meeting took place a day after We-
Work’s largest shareholder, SoftBank
Group Corp., provided a US$9.5-billion
lifeline and took over the company, in-
cluding payments to Mr. Neumann to give
up control. In response to a question from
one WeWork employee, Mr. Claure said
Mr. Neumann was like any shareholder of
the company who deserved the right to
sell his shares.
“There’s a level of gratefulness that
we’re going to have for Adam, because
he’s the one who built this business,” said
Mr. Claure, who is also the chief operating
officer at SoftBank.
Mr. Neumann has the right to sell his
stake in the company for as
much as US$970-million,
sources previously said, as
part of a tender offer in
which SoftBank will buy up
to US$3-billion in WeWork
shares from investors and
employees. He currently
owns a little more than one
fifth of WeWork.
SoftBank has also agreed
to extend him a US$500-
million loan to repay a
credit line from JPMorgan
Chase & Co., as well as pay
him a US$185-million fee
for a four-year assignment
as a consultant to WeWork, one of the
sources said.
Mr. Claure said that the new cash in-
jection meant WeWork was not going to
struggle to survive.He told the employees in a meeting at
the company’s New York headquarters he
did not know how many layoffs would
take place as WeWork looks
to “go back to basics.”
Sources close to the
company have mentioned
a range of figures for pos-
sible layoffs in recent
weeks, from as few as 2,000
to as many as 5,000 out of
its 12,500 employees.
WeWork is closing or
selling a number of busi-
nesses outside of the main
office-sharing operations. It
recently announced it
would close the WeGrow
private school in New York
after the current school
year.
WeWork did not immediately respond
to requests for comment.REUTERSWeWork’snewchairmandefendspayouts
tofounder,sayscompanywillsurvive
SHEILADANG
CARRIEMONAHAN
There’salevelof
gratefulnessthat
we’regoingto
haveforAdam,
becausehe’sthe
onewhobuiltthis
business.MARCELOCLAURE
WEWORKEXECUTIVE
CHAIRMAN[ALBERTA]