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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act
of 1934 [Amendment No. ______]
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Filed by a Party other than the Registrant [_]
Check the appropriate box:
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14a-6(e)(2))
[_] Definitive Proxy Statement
[X] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
SAFETY-KLEEN CORP.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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"SYNERGY" OVERVIEW
. We are convinced that Laidlaw's claims of $100 million to $130 million
dollars in "synergies" are dramatically wrong because of the fundamental
differences in the businesses.
. The Rollins experience is not instructive; in our view there was nearly total
business duplication in that case. (In Utah alone Rollins and LLE had two
under-utilized incinerators literally in the same territory.) From 1994-1996,
Rollins lost approximately $60 million after taxes.
. Safety-Kleen's success results from a fundamentally different business
approach, providing full service fluid management and environmental services
millions of times a year to small businesses. S-K sells "peace of mind", for
example, by agreeing with our customers to avoid using landfills.
. Compare the businesses:
<TABLE>
<CAPTION>
Safety-Kleen LLE
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<S> <C>
.400,000 Customers . 18,000 Customers
(average over 2,000 per service center)
. 5 million transactions per year . Small number of high volume transactions
. Primary assets: Service/recycling network . Primary assets: Landfills and incinerators.
. Productivity benchmark: 3,200 sales and service . Productivity is measured in part by tons of hazardous
reps generate an average of approximately $280,000 waste fed to high fixed-cost landfills and
in revenue each by making 10 to 12 revenue incinerators.
generating customer transactions per day.
. Vast majority of 300 million gallons of materials . We believe the majority of collected waste is buried or
collected is recycled or re-used. (More than 90% burned.
is recycled or reclaimed as a supplemental fuel.)
</TABLE>
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Safety-Kleen's Position on
Each Category of Claimed Synergy
. When Safety-Kleen and Laidlaw leadership met on November 5th, Safety-Kleen
asked LLE to share in writing its basis for claiming synergies in excess of
$100 million. None was sent. Subsequently, LLE has stated its expected
synergies in its exchange offer and proxy materials. The following review of
each of the three prongs of Laidlaw's synergies supports our conviction that
these synergies will not be achieved.
. Category One-Waste Internalization (Claimed LLE Synergies of $13.5 million to
$25 million).
- The majority, by volume, of material collected by S-K is recycled or re-
refined at S-K facilities; we do not believe LLE could effectively
internalize this.
- Total S-K outside waste treatment and disposal cost is approximately $30
million, not including transportation.
- Of the approximately 230,000 tons of hazardous waste sent by S-K for
incineration or energy recovery in 1997:
. Safety-Kleen spends only a total of $4 million on all outside
incineration, leaving limited opportunity for savings.
. Of the remaining material, more than 90% by volume was liquid fuel
waste of more than 11,000 BTU's.
- High BTU fuel cannot be effectively burned in hazardous waste
incinerators--even LLE sends its own high BTU waste to
third-party cement kilns.
- S-K's total disposal cost per ton of high BTU liquids is less
than $100, which we believe is lower than the variable costs
of the most efficient incinerator.
- Because of limited BTU capacity at LLE incinerators, internalizing S-K
waste at LLE could use up all existing practical U.S. capacity, unless LLE
reopens facilities it has stated are/will be closed.
- The Bottom Line: We believe that other than approximately $2 million in
savings from the $4 million in waste currently incinerated, savings are
unlikely and internalizing waste may indeed add cost to Laidlaw or
displace revenue. (Additional incineration waste from S-K's small
generator customers is likely to be small.)
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. Category Two: Service Center Consolidation (claimed LLE savings of $35
million to $67.5 million)**
- LLE proposes to close or "consolidate" 30 to 45 S-K branches and "save" up
to $1.5 million per branch "based on the experience with Rollins". This
claim must be put into perspective:
- 45 S-K Branches represent (approximately): $184 million in service revenue
(high gross profit)
90,000 customers served
1 million revenue-generating
service calls per year
This is several times the total volume of customers and transactions at
LLE even after the Rollins combination.
- Primary Branch Costs (other than equipment and the waste recycling,
treatment and disposal costs discussed under Category 1 above) consist of
labor and benefits, local transportation, and building and facility costs
totaling an average of $1.3 million per branch.
- These costs are distributed (on average) as follows:
Labor and benefits $ 895,000
Transportation (local) 215,000
Facilities 188,000
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$1,298,000
- Most of the labor costs and all of the transportation are sales/service
representatives and their trucks used to generate about $280,000 per
person, per year.
. These people are normally fully utilized (about 10-12 stops per day)
. Reducing their costs reduces revenue and profits
- Finally, branches are located so that representatives can maximize customer
stops per day. Eliminating branches should increase transportation costs.
- The Bottom Line: The S-K business is not at all like Rollins. In our view,
the most that could be saved at a branch without significant cuts in
revenue and growth momentum are $200,000 representing some management
overhead and facilities. Moving more waste through a consolidated facility
is not a significant benefit because the primary costs of service centers
are variable. (Service people, transportation and disposal)
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**Does not include processing facilities. S-K concedes there may be some cost
savings from processing center consolidation; however, we believe the
synergies will be substantially less than those LLE states it expects to
achieve.
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. Category Three; Selling, General and Administrative ("S,G&A" Expenses
(claimed LLE savings of $45 to $60 million)
- LLE proposes to eliminate 600-800 positions at $75,000 per position.
- Total Elgin Headquarters employment at Safety-Kleen is 655 people.
- The S-K Headquarters support functions manage logistics, MIS, marketing,
environment, health & safety compliance, waste manifesting, accounting,
billing, commissions, fleet, and all functions to support 5 million
transactions per year.
- The Bottom Line: As an aggressive estimate, S-K acknowledges that $14.5
million S,G&A savings may be achieved from the combination, but with so
little overlap between the businesses of S-K and Laidlaw, and the number
of transactions, 100% elimination of all support function, in S-K's view,
defies logic and would cripple this complex service network.
. Conclusion: Based on the difference in the businesses, we cannot conceive of
how the cuts proposed by LLE could be achieved without significant loss in
revenue and profits. LLE proformas assume that Safety-Kleen will maintain its
recent performance which is driven entirely by a highly motivated, high
performing work force generating 100,000 revenue-generating service calls per
week. S-K is convinced that efforts to achieve synergies by an entirely
different low-growth business will surely reduce productivity and planned
revenue and profit growth.
