Republic to buy Allied Waste for over $6B in stock

Ft. Lauderdale, Fla.'s Republic Services (NYSE: RSG) announced today that it would acquire Phoenix-based Allied Waste (NYSE: AW) for over $6 billion in stock, merging the country's No. 2 and No. 3 waste and environmental services providers.

The combined company, to be called Republic Services and be based in Phoenix, could be a significant rival to Houston-based market leader Waste Management (NYSE: WMI).

The merger would also bring together a portfolio of 86 recycling operations, as well as a growing list of waste to energy sites.

"We've got a number of landfill gas to energy projects. Eight currently operating, eight under contract negotiations, and another eight that we're looking at developing," said James O'Conner, chairman and CEO of Republic, in a conference call.

O'Conner said Republic has also looked at opportunities in e-recycling.

"As it relates to our total revenue mix, seven percent of the new, combined company will be from recycling collection and commodity sales."

Republic has 33 recycling facilities and primarily sorts paper, aluminum and glass, with the recyclable materials sold to third parties.

The company also has a Texas-based compost, mulch and soil business where yard waste and other material is processed, packaged and sold as various landscape products.

Alllied Waste said it handles more than 1.7 million tons of recyclable commodities a year at its 53 recycling sites, processing paper, glass, plastics, and reusable construction debris.

Allied is also becoming a player in waste to energy.

"We currently have 60 projects underway, operating projects at Allied for renewable energy, and have another 13 under development, and significantly more in the plans," said John Zillmer, chairman and CEO of Allied Waste.

He said the new company would continue to evaluate the green marketplace, including the potential to build new infrastructure for construction and demolition recycling and other opportunities.

Zillmer will not have a spot on the combined company's management team, which will be led by Republic's O'Connor.

The merged waste group is expected to have about $9.3 billion in revenues domestically and an expected total market capitalization of approximately $12 billion.

"It's absolutely on a competitive basis very similar to Waste Management's numbers in North America," said Zillmer.

Waste Management had revenues of $13.3 billion in 2007 and has a market capitalization of $18.8 billion.

In April, Waste Management announced that it formed a joint venture with Linde North America to build a California plant that the companies said would be the world's largest facility converting landfill gas to liquefied natural gas (see Waste Management, Linde to build landfill gas plant).

Linde North America is part of Germany's Linde, a gases and engineering group.

The companies plan to construct the $15.5 million project at the Altamont Landfill near Livermore, Calif.

Under the terms of today's deal, Allied shareholders will receive 0.45 shares of Republic common stock for each Allied share.

That values Allied at about $14.04 per share, based on Republic's closing price on Friday.

Republic said it would issue approximately 198 million shares to Allied shareholders, giving them 52 percent ownership of the combined company.

The two companies confirmed merger discussions earlier this month, but O'Conner said the talks have been ongoing for some time.

"This has been a very thoughtful process," he said. "The discussion started over two years ago between John and myself, looking at the strategic value of the combination."

The companies said the transaction should generate approximately $150 million in net annual synergies and to be accretive to Republic's earnings per share in the first year following completion of the merger.

The merger is subject to standard closing conditions, including approvals by antitrust and other regulatory authorities, but Republic and Allied expect to close the deal by the fourth quarter of this year.

O'Conner said there would be some layoffs as a result of the deal, including 100 jobs lost with closing of Republic's Ft. Lauderdale office.

"Then we'll look at market overlaps and we'll do a thorough review of the corporate office that exists in Phoenix, Ariz., which is presently Allied's office, as part of the integration planning process that will occur over the next six months."

The combined company will have more than 35,000 employees serving more than 13 million customers in 40 states and Puerto Rico.