Republic and Allied to form $20 billion company
Waste Management makes counter bid

Republic Services, Inc. and Allied Waste Industries, Inc. have announced that their boards of directors have unanimously approved a definitive merger agreement. The merger would create an entity with expected pro forma annual revenues of approximately $9 billion and an expected total market capitalization of approximately $12 billion.

These numbers are daunting, and perhaps the spur that goaded competitor Waste Management, Inc. to make an unsolicited counter bid for Republic. The counter bid, an offer for $6.19 billion in cash, was Waste Management’s attempt to have a say in the ongoing negotiations, and perhaps to prevent the emergence of a unified competitor.

A merged Allied and Republic would employ more than 35,000 people, and serve more than 13 million customers in 40 states and Puerto Rico. Before Waste Management became involved, the proposed merger was expected to be complete by the fourth quarter of 2008 and to generate approximately $150 million in net annual synergies. Now, however, the deal isn’t quite so clear.

The originally proposed merger would integrate the collection, transfer, recycling, and disposal operations under the management of Republic’s chairman and chief executive officer, James E. O’Connor. It would also assemble a growing landfill gas-to-energy portfolio and significant untapped renewable energy resources.

Cash flows from operations are expected to be in excess of $1.7 billion annually, much of which would be slated for reinvestment in the business, dividend program funding, and debt reduction.

The terms of the agreement dictate that Allied shareholders will receive 0.45 shares of Republic common stock for each share of Allied common stock held. The completion of the transaction would see Republic issuing approximately 198 million shares of common stock to Allied shareholders, or approximately 52% ownership of the combined company.

The merger agreement also allowed for Republic to enter into discussions with a third party who offered them a better deal. Enter Waste Management.

Waste Management’s offer initially represented a 22% premium over Republic stock’s July 11th closing price. But Republic’s shares have risen on the recent news, and the original premium has fallen to approximately 5%.

The counteroffer, however, was not an idle one. Waste Management has made provisions with Credit Suisse Securities, LLC to make any necessary divestitures in order to maintain compliance with its 1999 Department of Justice decree and to stave off anti-trust inquiries. The company believed that this could all be accomplished by early 2009.

Republic was not swayed. The offer was firmly rejected in a letter to Waste Management, calling it opportunistic, and asserting that it would deny Republic shareholders the benefits that the original merger with Allied would provide.

Shortly after Republic’s rejection of its offer, Waste Management expressed its disappointment with the decision. Waste Management CEO David P. Steiner noted that it was uncertain how far his company might go in order to acquire Republic, if indeed they decide to pursue the matter.

If the original merger of Republic and Allied goes through, the board of directors for the combined companies would consist of 11 members including Mr. O’Connor and five independent directors from the current boards of each company. The company would be based in Phoenix, Arizona.