R.Mark.JPG (24149 bytes)Merger fails, Azurix in fight for Bio Gro


Rebecca Mark
CEO, Azurix 

Enron Corp.'s water business spinoff and a Houston-based biosolid waste industry consolidator are firing legal salvos at each other in two states after year-long merger negotiations fell apart.

Enron's Azurix Corp. and Synagro Technologies Inc. are ardent suitors of Wheelabrator Water Technologies Inc. and Residual Processing Inc., known collectively as "BioGro."

Synagro and Azurix, which until only recently were mulling merger, are now squabbling over agreements involving the acquisition of BioGro, which is controlled by Houston-based Waste Management Inc.

Last week, Synagro won a temporary restraining order against Azurix in Harris County district court preventing Azurix from pursuing BioGro on its own. And Azurix filed its own complaint against Synagro in a Delaware court Oct. 29 asking that the court enjoin Synagro from interfering with its acquisition of BioGro.

Next week, Synagro will argue here in Houston for a temporary injunction against Azurix and eventually wants a permanent restraining order against Azurix's purchase of the BioGro companies.

"We're very confident of our legal position, and we're just going to move ahead with our business plan," says Alvin Thomas, in-house counsel for Synagro.

A spokesperson for Azurix declined to comment.

DAMPENED RELATIONSHIP

The two local companies in early 1999 began talking about the potential of Azurix investing in Synagro or even a possible merger of the two. As part of those discussions, according to Synagro officials, Azurix gained access to confidential and proprietary information to evaluate the potential transactions.

Azurix officials signed a confidentiality agreement Feb. 1 promising not to pursue companies for acquisition that Synagro had already targeted, including BioGro.

Synagro officials claim they introduced the executives of Azurix to BioGro and allowed Azurix to negotiate with BioGro under the terms of the confidentiality agreement and a "Standstill Agreement" that if merger talks between Azurix and Synagro broke down, Azurix would not pursue BioGro for eight months.

Synagro claims in its petition filed Nov. 1 that Azurix has violated that agreement and "is nearing completion of a purchase and sale agreement with BioGro's owners" using proprietary information from Synagro.

But Azurix officials claim Synagro waived its previous agreements with Azurix in late September and early October when the two companies finalized a merger agreement.

Azurix claims that Synagro waived the "Standstill" obligations on Sept. 28 in exchange for Azurix agreeing to purchase equity securities of Synagro in connection with their merger. Azurix says Synagro needed the investment from Azurix because it did not have sufficient funds or credit to complete a string of acquisitions that were to be part of the merger deal.

Last Friday Synagro announced it had signed a definitive purchase agreement to acquire seven businesses. The company said it plans to fund the acquisitions with loan commitments in excess of $140 million in debt financing and with an additional $16 million in private equity financing it is pursuing. The company said closing the acquisitions will be subject to the completion of this financing, which cannot be assured.

Meanwhile, Azurix's stock plunged 40 percent last week after Merrill Lynch downgraded the company's stock rating amid project delays in water and wastewater projects and lower-than-expected earnings estimates for the fourth quarter. The company's stock fell from over $13 to $7 on heavy trading in response to the downgrade. Since Azurix went public in June, it's stock has declined from an early high of $24.

Ross Patten, CEO of Synagro, was executive vice president in charge of development for Wheelabrator until 1991, when Waste Management acquired a controlling interest in the company.

Synagro is represented in its litigation against Azurix by attorney David Beck of the Houston law firm Beck Redden & Secrist. Azurix is represented by Delaware attorneys Alan J. Stone and David Teklits and by Houston attorney Neil Manne of Susman Godfrey.