Highstar eyes Veolia's $2 billion U.S. waste unit: sources

NEW YORK (Reuters) - An infrastructure fund manager that has severed ties with bailed-out insurer American International Group (AIG.N) is in advanced discussions to buy Veolia Environment SA's (VIE.PA) U.S. waste management business, in a deal that could be valued at as much as $2 billion, according to three people familiar the matter.

Highstar Capital, owner of waste management businesses in the U.S. Northeast and Southeast, has lined up financing and made a final offer for the unit, Veolia ES Solid Waste Inc, the people said.

While it was not immediately clear if there was another bidder, Highstar appears to be in the lead to buy the Veolia business, the people said.

Waste Connections Inc (WCN.N), a solid waste services company, had been mentioned as another potential buyer for the Veolia asset by industry analysts and bankers, but its chief financial officer said on Thursday the company did not bid.

"While we actually have the capital to do such a deal, we are not a part of the banker-led auction process," Waste Connections CFO Worthing Jackman told Reuters.

The French utility has hired Credit Suisse Group (CSGN.VX) and Barclays (BARC.L) to sell its U.S. solid waste management unit as part of its corporate-wide overhaul aimed at cutting debt and returning to profitability.

Final bids for the asset, which was expected to be valued at between $1.5 billion and $2 billion, were due last week and an outcome is expected in the next several days, the people said.

A deal has not been reached yet and there is no certainty Veolia would proceed with the sale, they cautioned.

Veolia declined to comment while Highstar did not respond to a request for comment.

AIG has cosponsored infrastructure funds together with Highstar, though the latter is an independent asset manager.

The sale of the U.S. waste management business would come weeks after Veolia sold a majority stake in its regulated UK water business for 1.24 billion pounds ($1.9 billion) including debt.

One of the largest solid waste companies in the United States, Milwaukee, Wisconsin-based Veolia ES Solid Waste operates 72 collection facilities and 29 solid waste sanitary landfill facilities in North America.

The business has trailing earnings before interest, tax, depreciation and amortization (EBITDA) of around $250 million and could fetch as much as eight times in a sale, people familiar with the company have told Reuters previously.

(Reporting by Soyoung Kim and Greg Roumeliotis in New York; Additional reporting by Sophie Sassard in London; Editing by Gary Hill and Matthew Lewis)