Geoffrey Smith

Biffa shares (LON:) soared on Tuesday in London following the announcement by waste management firm Biffa that it has received indicative offers from Energy Capital Partners to takeover.

The proposals, from ECP and various funds managed by it, imply a valuation of around 445 pence a share, a level that Biffa’s management said it would be inclined to recommend if a formal bid comes in. The company would be valued at approximately 1.35 million pounds (1.69 trillion).

Biffa stated that it had given ECP the access necessary to do due diligence.

ECP’s decision on whether or not to proceed may hinge on the fate of an enquiry by U.K. tax authorities into how it classified the waste it put into landfill sites in the past.

HMRC has given protective assessments to Biffa that could result in Biffa being required to pay upto 153million pounds, plus interest and penalty. Biffa’s tax declarations have assumed a liability of only 176,000 pounds, by contrast.

The potential extra liability coming down the line was reflected in Biffa’s share price rally on Tuesday, which stopped well short of the 445p level. Stock was at 4:05 am ET, 0805 GMT. It had increased 27% to 412.55 by that time. Tuesday’s price action brought the stock back to within a whisker of its all-time high of 419.50, posted last September.

Waste management is widely seen as a recession-proof activity, although that hasn’t stopped the stock losing around a quarter of its value since last summer as the U.K. economy has weakened and the risk of ‘stagflation’ has risen.

Biffa said in its statement that recent trading has been in line with its expectations, noting that it is ‘mitigating’ inflationary headwinds and making “good progress” in integrating recent acquisitions, which include an expansion of its production of food-grade recycled plastics, and the development of energy from waste projects.