HomeMy WebLinkAbout1998-10-05 City Council (16)City of Palo Alto
City Manager’s Report
TO:HONORABLE CITY COUNCIL
FROM:CITY MANAGER DEPARTMENT:ADMINISTRATIVE
SERVICES
DATE:OCTOBER 5, 1998 CMR:383:98
SUBJECT:STATUS OF PASCO STOCK SALE TO USA WASTE OF
CALIFORNIA, INC.
This is an informational report and no Council action is requested.
BACKGROUND
On August 19, 1998, the City Manager received a letter from Palo Alto Sanitation Company
(PASCO) owner, Paul W. Madsen, Jr., notifying the City that he had entered into an
agreement to sell his stock in PASCO to USA Waste of California, Inc., (USA Waste) a
Delaware Corporation. On September l, 1998, staff notified Mr. Madsen that the City
viewed this transaction as an assignment of its Refuse Collection and Recycling Agreement
(Agreement) with PASCO to a new entity. The Agreement between the City and PASCO
prohibits any assignment or transfer without the prior written consent of the City, and then
only subject to such terms and conditions as the City may require. Further, staff reminded
Mr. Madsen that the Agreement requires that the operation 0fPASCO be conducted as an
independent entity and that the assets, liabilities, revenues, expenses, and net worth of
PASCO not be combined, consolidated, or in any way incorporated with those of any other
operation. Staff has since determined that USA Waste is a wholly-owned subsidiary of
Waste Management, Inc., and that PASCO would be owned by the largest solid waste
collection corporations in the country.
On September 9, 1998, staff received a letter from Waste Management, Inc. notifying the
City that it had entered into an agreement with Mr. Madsen to purchase the outstanding stock
of PASCO. Therefore, only the ownership of the underlying stock in PASCO will change.
Waste Management Inc. stated that the transaction does not involve the assignment of
PASCO’s Agreement with the City, and, as a result, the consent of the City was not
technically required. Waste Management Inc. was, however, seeking the approval of the
City for the assignment of the lease of the Geng Road property, used by PASCO. Waste
CMR:383:98 Page 1 of 4
Management, Inc. has so notified the City of its desire to have the City Council consider the
assignment of the agreement by October 13, 1998; it is not possible to meet this date.
Staff also received communication from Mr. Madsen’s attorney, restating Mr. Madsen’s
intention to sell his stock in PASCO to USA Waste, and stating his belief that under USA
Waste, PASCO will continue to provide the same level of service to the City of Palo Alto.
In addition, the letter states that if Mr. Madsen is prevented from consummating the sale of
stock of PASCO to USA Waste due to the actions or inactions of the City, he will incur very
substantial damages.
DISCUSSION
Based upon the above, listed communications, the City has
information from USA Waste: ,
requested the following
o
Copies of all agreements between USA Waste and Mr. Madsen for the
purchase of stock of PASCO and the transfer of control of PASCO .from Mr.
Madsen to USA Waste,~ and all other agreements regarding the transfer or
assignment of the Agreement. Information as to whether USA Waste will be
purchasing 100 percent of the stock of PASC0. Information regarding who
will own the stock not acquired by USA WaSte, and in what amounts, if the
purchase is not for 100 percent of the stock.
The monetary value of the transfer from Mr. Madsen to USA Waste.
Information regarding what happens to the retained earnings as the stock is
transferred.
A list of all municipalities and counties serviced by USA Waste, or
subsidiaries of USA Waste, in the counties of Alameda, Santa Clara, and San
Mateo.
CMR:383:98
A description of the organizational structure under which PASCO will operate
as a separate entity from USA Waste or Waste Management, Inc. or any other
. entity.
Information regarding the individual wh0will replace Mr. Madsen as Project
Director, including the date the individual is to assume that position, and the
qualifications of that individual to operate PASCO, consistent to the high
standards enjoyed and expected by the City of Palo Alto. (The USA Waste
letter indicated that it "may also be seeking the approval of the City’s Project
Manager for a change in the designated Project Director." )
Page 2 of 4
o
10.
Personnel changes, if any, that are anticipated.-
Operational procedures, if any, that may be changed after the sale.
A five-year business plan including revenue and expense projections for both
operating and capital purchases. The plan should be based on current service
levels and practices.
Assurance that PASCO, under new ownership and management, will continue
to provide the same high level of service that has been provided under the
control of Mr. Madsen.
The City has also advised USA Waste that it expects USA Waste to execute an assignment
and assumption agreement assuming all the obligations of PASCO and agreeing to maintain
PASCO as a separate entity.
Staff plans to meet with Mr. Madsen and representatives from USA Waste and Waste
Management, Inc. The City’s goal is to fully analyze the current net worth of PASCO, the
ability for PASCO to be operated as a separate entity, the potential for service levels and
rates to remain at current levels, identify all audit concerns regarding the operation of
PASCO by another entity, and the ability to negotiate an assignment of the current agreement
and/or a new agreement with USA Waste or Waste Management, Inc.
Once staffhas received a response from Waste Management and the analysis of the related
issues has been completed, staffwill return to Council for consideration of the assignment
of the agreement between the City of Palo Alto and PASC0 and approval of the assignment
of lease with PASCO for the Geng Road facility. If Waste Management’s response to staff’s
request is timely, a report could be brought back to the Council in early November 1998.
However, if these issues cannot be resolved, staff will be prepared to make recommendations
to Council regarding the legal options available tothe Cir.
ATTACHMENTS
Attachment A: Paul Madsen’s August 18, 1998 letter to June Fleming
Attachment B: June Fleming’s September 1, 1998 letter to Paul Madsen
Attachment C: Douglas Sobey’s Waste Management letter of September 9, 1998
Attachment D: Teresa Pahl’s September 16, 1998 letter to June Fleming
Attachment E: June Fleming’s September 18, 1998 letter to Douglas Sobey
Attachment F: June Fleming’s September 18, 1998 letter to Teresa Pahl
CMR:383:98 Page 3 of 4
DEPARTMENT HEAD APPROVAL:
CITY MANAGER APPROVAL:
CC: n/a
CARL YEATS~//
Director, Administrative Services
CMR:383:98 Page 4 of 4
ATTACHMENT A
August 18, 1998
98 19 10:2 3
City of Palo Alto
Attn: June Fleming, City r~,a~n#g,,e,~qA6[-:[;.s OF~t,;~
250 Hamilton Ave.
PaloAIto, CA 94301
PA$CO
PALO ALTO SANITATION CO.
Re: Contract C-4688, Sale of PASCO Stock
Gentlepersons:.
I have received a signed agreement to purchase my stock in PASCO from USA Waste
of California, a Delaware corporation. I believe this transaction is in the best interests
of the City of Palo Alto and myself and my wife, due to my impending retirement.
USA Waste differs from the alternative company purchases ,available to me and the
City in that their stated philosophy of managem.ent is very similar to mine and their
approach leading up to this offer supports my beliefs. They are strong financially and
demonstrate integrity in their methods of doing business. I hope your investigation will
bear out the truth of my observations as I would like to leave my life’s work in good
hands.
They offer to meet with interested City representatives for inspection and investigation
within 24 hours of notice, to facilitate the transfer of ownership. I’m sure it will be a
simple transaction and I’ll work to make it so.
Thank you for my forty years of employment under contra’ct with the City. It’s time for
my career to end and a different life to begin.
Sincel
"-"-Pa~l W. Ma
President L ....
"PASCO SAM,"A NEAT GARBAGE MAN
2000 GENG ROAD " PALO ALTO, CALIFORNIA 94303 " f415) 493-4894 ¯FAX (415) 493-2537
ATTACHMENT B
Office of the City Manager
September 1, 1998
Paul W. Madsen, Jr.
President
PASCO
2000 Geng Road
Palo Alto, CA 94303
Dear Mr. Madsen"
’ I am in receipt of your letter dated August 18, 1998, where you have indicated that
you have received a signed agreement from USA Waste of California to purchase your
¯ stock-in PASCO. I appreciate your cooperation in not only sending the formal notification
but also stopping in my office to notify me in person. Such consideration is typical of the
quality of service PASCO, under your ownership and control, has provided to this
community. ’
As I indicated to you, the City Council is in recess at this time. They return on
September 14, and as soon as practical after that return,.they will be officially notified of
your decision.
I note that you have designated this transfer a "purchase of stock." For all practical
purposes, the proposed transaction is a transfer of the agreement to a new entity. As you
are no doubt aware, paragraph .19 of the agreement between .the City and PASCO
prohibits any assignment or transfer without the prior written consent of the other party, and
then only subject to such terms and conditions as the other party.may require. I also call
to your attention paragraph 33 of the agreement, which requires that the operation of
PASCO.under theagreement be conducted as an independent entity and that the assets,
liabilities, revenues, expenses, and net worth of PASCO not be combined, consolidated,
or in any way incorporated with those of any other operation.
The transfer may be a complicated one with a numberof details to be investigated
and resolved. The City will work through the issues with you, and I will contact you
regarding process as soon as I have been able to bring the issue to the Council.
P.O. Box. 10250
Pal{} Alto, CA 94303
650.329.25{~3
651}.328.3631 fax
Paul W. Madsen, Jr.
Page Two
September 1, 1998
I must caution you, however, that your longstanding service to the City, and the
importance to the City of having a locally controlled business providing solid waste services
were significant factors in PASCO being awarded this agreement. USA Waste of
California is a large company, and a subsidiary of an even larger company. The local
cont~rol that has been so important to the City these past years would be lost if this
transaction is completed. The City will take a long hard look at whether it is willing to have
a megafirm such as USA Waste providing solid waste collection services in the City.
Thank you for the forty years of outstanding service.
V. truly
CC
NE
Manager
Carl Yeats, Director of Administrative ices
Glenn Roberts, Director of Public Works
Susan Case, Senior Assistant City Attorney
Michael Estrada, Esq.
Ms. June Fleming,
City Manger
City of Palo Alto
250 Hamilton Avenue
P.O. Box 10250
Palo Alto, CA 94303
ATTACHMENT C
Western Area
155 North Redwood Drive
September 9, 1998 Suite 250
San Rafael, CA 94903
(415) 479-3700
Mr. Carl Yeats, (415) 479-3737 Fax
Director of Administrative Services
City of Palo Alto
250 Hamilton Avenue
PIO. Box 10250
Palo Alto, CA 94303
Mr Glenn Roberts,
Director of Public Works
City of Palo Alto
250 Hamilton Avenue
P.O. Box 10250
Palo Alto, CA 94303
Ms. Susan Case,
Senior Assistant City Attorney
City of Palo Alto
250 Hamilton Avenue
P.O. Box 10250
Palo Alto, CA 94303
Re: Palo Alto Sanitation Company
Ladies & Gentlemen:
We have been provided with a copy of Mr. Fleming’s letter to Paul W. Madsen, Jr.
concerning the proposed sale of Mr. Madsen’s stock in Palo Alto Sanitation Company to USAWaste
of California, Inc. The purpose of this letter is to introduce ourselves and our company, to explain
the proposed sale and its effects on the current refuse collection and recycling agreement with the
City, and to address any concerns which you may have in that regard.
USA Waste of California, Inc. is a wholly-owned subsidiary of Waste Management,
Inc., and have our area headquarters in San Rafael, California. We provide collection services to
numerous municipalities and counties in the Bay area, including the City of San Jose, and the
Counties of Alameda, Marin, Sonoma and San Francisco. USA Waste of California has substantial
experience and expertise in the areas of refuse .collection and recycling, and substantial financial
resources with which to back our performance and commitments. ~
Our company has recently entered into an agreement with Paul W. Madsen, Jr. to
purchase the outstanding stock of Palo Alto Sanitation Company. In this transaction, only the
ownership of the underlying stock in that company will change. There will be no transfer or.
assignment of Palo Alto Sanitation’s collection agreement. Palo Alto Sanitation Company will
continue to exist and operate as a separate entity after the sale. It will not be m_erged into, or
consolidated with, any other company as a result of the transactionl
Palo Alto Sanitation will continue to provide the same quality services to the City after
the sale, with the same employees, same trucks and equipment, and same schedules that were in place
before the sale. The company will continue to operate the business out of its current location in the
city of Palo Alto. The company’s net book value will remain the same and there will be no
acquisition adjustment to Palo Alto Sanitation’s books which will result in increased costs to our
customers on account of the stock sale.
Since the sale of Mr. Madsen’s stock does not involve the assignment of Palo Alto
Sanitation’s Refuse Collection and Recycling Agreement, the consent of the City may not technically
be required under that agreement. We are, however, seeking the approval of the City for the
assignment of the lease of’the Geng Road property used by the Company. That lease has expired and
is currently on a month-to-month basis. We may also be seeking the approval of the City’s Project
Manager for a change to the designated Project Director. We have been advised that there is no
reasonable basis in law or fact for withholding such consent.
Nevertheless, we understand the concerns expressed in Mr. Fleming’s letter and
appreciate the City’s desire to retain locally managed service. We are convinced that we can satisfy
any concerns you may have regarding local management and responsiveness to the community. We
are anxious to provide whatever additional information you might wish to see with regard to our
company or the sale.
Since Mr. Madsen expects to close the transaction not later than September 30, 1998
we would appreciate your contacting us as soon as possible with any questions or requests for
additional information concerning the proposed transaction or our commitment to continue the same
excellent service which the city has received from Palo Alto Sanitation in the past. We look forward
to heating from you.
USA Waste of California, Inc.
Dou~glas G~. obey
Senior Vice President
TERESA V. PAHL
ATTACHMENT D
LAW OFFICES OF
LELAND, PARACHINI, STEINBERG,
~V~ATZGER 8¢ ~V~ELNICK, LLP
3,33 MARKET STREET - 27v" FLOOR
SAN FRANCISCO, CALIFORNIA 94105-RI71
TELEPHONE:: (415) 957ol800
FACSIMILE: (415) 974-15R0
September 16, 1998
LOS ANGELES OFFICE
BILTMORE TOWER
SO0 SOUTH GRAND AVENUE
LOS ANGELES, CALIFORNIA 90071-~’609
TELEPHONE: (Z13) 6::’3-7505
FACSIMILE; (~’13) e:~3-7595
VIA FEDEX AND FAX (650) 323-8356
Ms. June Fleming
City Manager
City of Palo Alto
250 Hamilton Avenue
P.O. Box 10250
Palo Alto, CA 94301
Re: PASCO - Proposed Sale of Stock
Dear Ms. Fleming:
Our firrn represents Paul W. Madsen, Jr. and Palo Alto Sanitation Company ("PASCO").
We recently received a copy of your letter dated Septernber 1, 1998 to Paul W. Madsen, Jr. and
the newspaper article published on September 11, 1998in the Palo Alto Daily News concerning
Mr. Madsen’s proposed sale of stock to USA Waste of California, Inc. ("USA Waste").
On behalf of Mr. Madsen, we want to confirm that an important consideration in Mr.
Madsen’s decision to accept the offer of USA Waste to purchase all of the outstanding stock of
PASCO was his firm belief that USA Waste possesses the experience, quality of service and
financial strength to provide the citizens of Palo Alto with the same, if not better, refuse and
recycling service as PASCO has provided for the last 40 years. Mr. Madsen has had extensive
discussions with numerous members of the management team of USA Waste and is convinced
that the philosophy, management style and commitment to excellent serviceof USA Waste
makes it the best candidate to continue the operations of PASCO. Under the ownership of USA
Waste, PASCO will continue to provide the same services to the City of Palo Alto, using the
same employees, trucks and equipment and the same schedules as are currently in place.
Furthermore, the financial strength that USA Waste can devote to performing its commitments
to the citizens of Palo Alto far exceed that of PASCO. These are.only a few of the many
reasons whyMr. Madsen determined that the City of Palo Alto would be well-served by USA
Waste as its refuse and recycling provider..
We also want to clarify that, in addition to the considerations mentioned above, the offer
from USA Waste is significantly advantageous to Mr. Madsen. Mr. Madsen has repeatedly
G: \TVP\PASC\O001 \LTR\134384
LEL~ND, PARACHINI, STEINBERG,
~-VI-A.TZGER ~ ~V~LNICK, LLP
Ms. June Fleming
September 16, 1998
Page 2
disclosed to you as well as other city officials his desire to retire. If Mr. Madsen is prevented
from consummating the sale of his stock of PASCO to USA Waste due to the actions or
inactions of the City of Palo Alto, he will incur very substantial damages. We are unaware of
any reasonable basis for the City of Palo Alto to withhold its consent to the proposed
transaction. Both USA Waste and Mr. Madsen have offered to provide you with whatever
additional information you deem necessary and have offered to meet with you and other city
officials to personally address your questions and concerns. Since we have not received a
response to this offer, Mr. Madsen will be contacting you directly to schedule a time when he
and representatives of USA Waste, can meet with you to discuss the proposed stock sale.
Mr. Madsen has enjoyed his work with the City of Palo Alto for over 40 years. It is
with a degree of sadness Mr. Madsen will be leaving his work with the City and this is why he
devoted such care in selecting a buyer which he strongly believes is capable of continuing to
provide the excellent service which PASCO has provided the citizens of Palo Alto for the last
40 years.
Please feel free to contact either Paul W. Madsen, Jr. or me if you have any questions
or desire any additional information. We look forward to hearing from you soon.
Very truly yours,
Teresa V. Pahl
TVP:Irh
Mr.Paul W. Madsen, Jr., PASCO
Mr.Carl Yeats, City of Palo Alto
Mr.Glenn Roberts, City of Palo Alto
Ms.Susan Case, City of Palo Alto
ATTACHMENT E
City Palo Alto
Office of the City Manager
September 18, 1998
Mr. Douglas G. Sobey
Senior Vice President
USA Waste of California, Inc.
c/o Waste Management
155 North Redwood Drive, Suite 250
San Rafael, California 94903
Re: Palo Alto Sanitation Company
Dear Mr. Sobey:
This is in response to your letter of September 9, 1998.
I appreciate your providing the City with preliminary
information regarding your proposed transaction with Mr. Madsen.
Although you state that the acquisition of Mr. Madsen’s stock by
USA Waste does not involve the assignment of the refuse collection
and recycling agreement dated March 9, 1987 (the "Agreement")
between Palo Alto Sanitation Company ("PASCO") and the City of Palo
Alto (the ."City"), we disagree with your position that "the consent
of the City may not technically be required." Notwithstanding
whatever legal fiction was used to structure this transaction, the
proposed transaction results in the transfer of the Agreement to
USA Waste. If the acquisition of PASCO by USA Waste is completed,
Mr. Madsen, as sole owner of PASCO, will have transferred both
PASCO and the Agreement to USA Waste. We view this as a transfer
subject to the provisions of Section 19 of the Agreement.
Nevertheless,i I wish to reassure you that the City will work
with you in good faith toreview the proposed transaction and, if
the reasonable concerns of the City can be addressed, approve the.
transfer.
In that regard, .please provide us with the
information at your earliest convenience:following
Copies of all agreements between USA Waste and Mr,. Madsen
for the purchase of stock of PASCO and transfer of
control of PASCO from Mr. Madsen to USA Waste, and all
other agreements rega[ding the transfer or assignment of
the Agreement. Will USA Waste be phrchasing I00 percent
of the stock of PASCO? If not, who will own the stock
not acquired by USAWaste, and in what amounts?
RO. Box 10250
Palo Alto, CA 94303
¯ 650.329.2563
650,328,3631 fax
Mr. Douglas G. Sobey
September 18, 1998
Page 3
negotiations to continue, with the objective of entering
into a new agreement effective with the next fiscal year.
Please advise as to your position regarding renegotiation
of the Agreement.
If the City approves the transfer, USA Waste will be asked to
execute an assignment and assumption agreement assuming all the
obligations of PASCO and agreeing to maintain PASCO as a separate
entity.
We understand from your letter that Mr. Madsen desires to
close the transaction no later than September 30, 1998. We will do
everything we can to respond to your request for approval promptly.
However, the only remaining Council meeting in September is on
September 22, which does not provide adequate time to analyze the
proposed transaction. The earliest this matter can be considered
by the Council is October 13.
We sincerely.lookforward to the possibility of working with
you to establish a mutually satis.factory relationship for the
provision of solid waste and recycling services in the City of Palo
Alto.
cc:Glenn Roberts, .Director of Public Works
Carl Yeats, Director of Administrative Services
Ariel Pierre Calonne, City Attorney
Sue Case, Senior Asst. City Attorney
Michael Estrada, Esq.., Richards, Watson & Gershon
ATTACHMENT F
City Palo Alto
Office of the City Manager
September 18, 1998
Ms. Teresa V. Pahl, Esq.
Leland, Parachini, Steinberg,
Matzger & Melnick, LLP
333 Market Street, 27th Floor
San Francisco, CA 94105-2171
Re: PASCO - Proposed Sale of Stock
Dear Ms. Pahl:
We have received your letter via FAX dated September 16, 1998. The City of.Palo
Alto is currently conducting an internal review of the proposed sale of PASCO stock to USA
Waste of California, Inc. For your information, I have attached a copy of the City’s request
for the information required to conduct our analysis.
We sincerely look forward to the possibility of working with you to establish a
mutually agreeable solution to this transaction.
J/JL E FILEMrNG
Manage~
Paul W. Ma6sen, dr., PASCO
Glenn Roberts, Director of Public Works
Carl Yeats, Director of Administrative Services
Ariel Pierre Calonne, City Attorney
Sue Case, Senior Assistant city Attorney
Michael Estrada, Esq., Richar6s, Watson & Gershon
£O. Box 10250
Palo Alto, CA 94303
650.329.2563
650.328.3631 fax