Waste Management Inc (WMI.N) on Monday offered to buy Republic Services Inc (RSG.N) for about $6.19 billion, potentially derailing the smaller competitor's deal to acquire Allied Waste Industries Inc (AW.N).
Republic said in a statement that it would carefully review the proposal and respond in due course, but the company noted that it already had a definitive merger agreement with Allied Waste.
At $34 per share, Waste Management's bid represents a 22 percent premium over Republic's closing price on Friday. Republic shares rose nearly 13 percent, while Waste Management and Allied Waste fell.
The proposal came as a response to Republic's agreement in June to buy Allied Waste for $6 billion, Waste Management Chief Executive David Steiner told Reuters in an interview.
"As soon as we saw the announcement, we realized both Republic and Allied had been put into play, so we started to look at it," he said.
Republic shares had been off 17 percent since word leaked of the company's plan to bid for Allied, which created the opening Waste Management needed to offer a competing proposal, JPMorgan analyst Scott Levine wrote in a note to clients.
Republic's strong business in Las Vegas is an especially compelling asset, said Steiner, who said Waste Management hadn't yet started to figure out how many landfills the combined company would have.
"While we know there are certain assets we may need to divest, we're also certain the assets we'll get to keep are significant and make for a compelling transaction," Steiner said during a conference call.
Steiner would not predict the combined company's market share.
The largest U.S. trash hauler, Waste Management has about a third of the nation's landfill and collection business. It posted 2007 revenue of $13.31 billion.
REGULATORY APPROVAL SEEN
The U.S. Justice Department is likely to approve a Waste Management-Republic combination, said Peter Anderson, executive director of the Center for a Competitive Waste Industry in Madison, Wisconsin.
Anderson predicted divestitures in cities where there was overlap between the two companies, but said an overworked Justice Department staff would probably agree to what the companies suggest.
"If you had an aggressive antitrust enforcement, (the proposed takeover) would be laughed at," he said, adding that trash haulers do not become more efficient once they expand beyond any given metropolitan area.
"The market for waste services is metro, not national," Anderson said.
Waste Management said the acquisition would boost its earnings in the first year after closing and generate at least $150 million in synergies. It expects to complete the transaction in early 2009.
The company expects to maintain its investment-grade status and said it believed it would easily obtain the necessary financing.
"The market for investment-grade paper is very robust," Steiner said.
Waste Management said its offer was a better alternative for Republic shareholders than Republic's deal with Allied.
Separately, Waste Management said it expected to report second-quarter earnings of 61 cents or 62 cents per share, excluding special items, compared with the analysts' average estimate of 58 cents.
The company said revenue rose 3.9 percent to $3.49 billion during the quarter from a year earlier. Analysts were expecting $3.43 billion, according to Reuters Estimates.
In afternoon New York Stock Exchange trade, Republic shares were up 12.9 percent at $31.49, while Waste Management dropped 6.6 percent to $34.19 and Allied Waste fell 3.7 percent to $11.55.
(Additional reporting by Diane Bartz; Editing by John Wallace and Lisa Von Ahn)
