Waste Management drops bid for Republic

WEST HARTFORD — Waste Management Inc., the nation's largest garbage hauler, on Monday withdrew its $6.73 billion bid to acquire smaller rival Republic Services, saying the move wouldn't be prudent given current financial market turmoil.

The announcement ends a 3-month takeover struggle that began in July when Houston-based Waste Management first offered to buy rival Republic Services Inc., the nation's No. 3 trash hauler, and continued when Waste Management sweetened its takeover bid in August.

The moves were seen as an effort to derail an earlier deal between Republic Services and Allied Waste Industries Inc., the second-largest player in the industry.

On Monday, Waste Management said it won't risk its strong financial position to engineer a hostile takeover. Chief Executive Officer David Steiner said the credit crisis motivated Waste Management to drop its bid.

"Quite frankly, it came down to the credit markets," he said in an interview. "We're certainly not willing to pick up assets at any price or if we believe it would create undue risks to our business model."

In August, Waste Management raised its buyout offer to $37 a share after Republic swiftly rejected an earlier $34-per-share bid, saying it undervalued the company and was an attempt to disrupt its own acquisition plans.

The $6.73 billion offer represented a nearly 33 percent premium to Republic's closing stock price on July 11, the last trading day before Waste Management announced its first offer. Republic at the time said it believed its proposed combination with Allied offered more value and certainty for shareholders and was moving forward with that deal.

Amid a broad rally on Wall Street Monday, Republic Services closed up $2.00, or 8.9 percent, to $24.50, while Allied Waste jumped $2.10, or 24.6 percent, to $10.64.

Meanwhile, Waste Management shares rose $4.63, or 18 percent, to $30.39. They have fallen more than 20 percent since July 11, the last day of trading before the company announced its offer for Republic.

On Monday, Will Flower, spokesman for Republic Services in Fort Lauderdale, Fla., said Republic Services and Allied Waste Industries Inc. are moving along with their plans to combine operations. The companies expect to close the $6.07 billion deal in mid-December.

"The announcement today from Waste Management clearly takes another obstacle out of the way," he said.

James Zeumer, spokesman for Phoenix-based Allied Waste, said Waste Management's decision allows the two smaller companies "to focus on the integration process."

Standard & Poor's Ratings Services affirmed its investment-grade rating on Waste Management Inc. after the trash hauler announced it would drop its offer for Republic. The agency also removed the rating from a review for possible downgrade on the news. It reiterated a "BBB" rating.

S&P said the withdrawal reduces the risk that Waste Management would have taken on a debt and interest burden that would have harmed its credit quality.

Stewart Scharf, an equity analyst at Standard & Poor's in New York, said the rapidly deteriorating credit market forced Waste Management to act.

"I thought that if they were to present a new proposal it would probably have to be restructured to include stock based on current market conditions," he said. "It would be difficult to maintain an investment grade rating, which is important to them. In general, the timing just didn't seem right for them to pursue this."

Scharf said the scuttled deal was the largest he's heard of, and that Waste Management was not likely to be weakened by its retreat.

"They might have been getting in over their head with the plan to pursue Republic in an effort to have a stronger hold and market share in the industry," he said. "By avoiding that burden of debt, plus the fact that it's more difficult now to access credit markets, they probably in the long run are doing themselves a favor."

Flower said the credit crisis has not jeopardized the Republic-Allied deal, which is being executed in stock, because the two companies raised capital more than a month ago.

"We had no problems," he said.

Analyst David Feinberg of Goldman, Sachs & Co. said in a note that Waste Management should benefit from a potential merger between Allied Waste and Republic because the rivals' deal will bring about more efficient trash hauling operations and keep down prices.

Officials of Republic and Allied have said the deal will allow the companies to save $150 million by combining operations. Zeumer said plans include reducing the number of trucks by shortening routes to more landfills and consolidating the two companies' operations at Allied's headquarters in Phoenix.

Combined, Waste Management-Republic would have been a nearly $16.5 billion-a-year enterprise, dwarfing Allied, which reported 2007 revenue of about $6.1 billion.

Also Monday, Waste Management forecast earnings of 62 cents per share for the three months ended in September. Excluding one-time items, it predicts profit of 62 cents or 63 cents per share.

Analysts surveyed by Thomson Reuters, on average, expect 60 cents per share. Those estimates typically exclude one-time items.

Back To Top