Republic Services gets bid

Waste Management Inc., North America's largest trash hauler, has made an unsolicited offer to buy Republic Services Inc. for about $6.19 billion, seeking to stop the company from acquiring Allied Waste Industries Inc.

Waste Management Chief Executive Officer David Steiner is trying to maintain the company's size advantage in an industry affected by rising fuel costs and a weakening economy that has reduced demand for construction-waste removal. The trash hauler and its rivals have cut unprofitable routes and added fuel surcharges to stay competitive.

The bid of $34 a share in cash is 22 percent higher than Republic's closing share price on Friday, Houston-based Waste Management said Monday. Waste Management fell $2.12, or 5.8 percent, to $34.49 at 4:15 p.m. in New York Stock Exchange composite trading, the biggest daily drop since Oct. 26.

Waste Management would likely borrow to pay for Republic, “adding considerable debt to the capital structure versus where they are today,” Fitch analyst Stephen Brown said in a telephone interview. “Equity investors are looking at the overall cost and having some concern about that.”

Republic agreed last month to buy Phoenix-based Allied Waste in a $6.1 billion stock transaction that would make it North America's second-largest trash hauler by revenue.

Standard & Poor's analyst Stewart Scharf estimated last month that Republic would have about 17 percent of the national market after acquiring Allied, still smaller than Waste Management's 25 percent.

Waste Management operates in all except one of Republic's 20 markets, which are mostly in the Southern U.S., making it easier to integrate operations and cut costs, Steiner said.

“This is a series of 20 deals in 20 of our market areas, and so the local management is able to get those synergies out very easily,” Steiner said.

Combining with Fort Lauderdale, Fla.-based Republic may save about $150 million in duplicate costs within a year, Waste Management said.

Waste Management's acquisition of Republic would create a company that would have had sales of $16.5 billion last year, compared with $9.24 billion for a Republic-Allied merger, according to Bloomberg data.

Waste Management “has the cash and available financing to complete the deal without too much trouble,” Scharf said. “Republic's purchase of Allied would require more difficult arrangements.”

“I'm not going to say whether there will be a higher bid,” Steiner said.

Republic “will carefully review the proposal received from Waste Management consistent with its fiduciary duties,” the company said. “Following its review, the board will respond in due course.”

James O'Connor, Republic's chief executive officer and chairman, said in April that cost cuts and an average price increase of about 4 percent in the first quarter helped compensate for lower revenue from construction sites amid the U.S. housing downturn.