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No Trash-Talking This Deal

I know most Fools look forward to Fridays, but you won't hear me say TGIF. Friday is trash pickup day where I live, and the noise of slamming Dumpsters and howling hydraulics is hardly something to look forward to. This week, though, it's different. Today, trash day has fallen on a Monday, and there's no noise but the sweet sound of investment opportunity.

Republic Services (NYSE: RSG  ) announced this morning that it will acquire rival Allied Waste Industries (NYSE: AW  ) in an all-stock deal valued near $6 billion. By combining the No. 2 and No. 3 players in the U.S. waste-hauling market, Republican launches itself into stiff competition with industry leader Waste Management (NYSE: WMI  ) .

Allied shareholders will receive 0.45 shares of Republic Services for each Allied share, valuing Allied shares at about a 3% premium over last week's close. But when you look at the trailing 30-day average share price, the premium rises to a respectable 17%. Republic Services shareholders, meanwhile, will appreciate paying less than 50% of Allied's enterprise value of $12.5 billion. The merger is expected to be accretive to earnings by next year.

Billed as a win-win for both companies, the merger is projected to create annual synergies of $150 million. According to Allied CEO John Zillmer: "Republic has an extensive presence in the high-growth Sunbelt markets, an established franchise business and a strong capital structure. Allied has a broad national footprint, an innovative procurement platform and significant internalization opportunities. Together, we are positioned for greater success than either company could achieve on its own."

Moody's appears set to bless the merger as well, signaling it may issue an investment-grade "Baa3" rating for the combined company, and characterizing the merger as a "logical step in industry consolidation."

Hopefully, the new Republic Services will leverage an improved economy of scale, following Waste Management's lead in fostering energy production and efficiency. According to today's press release, the merger will assemble "a growing landfill gas-to-energy portfolio and significant untapped renewable energy resources." Republic Services has a lot of work ahead to match the branding success of Waste Management's "Think Green" campaign, but the merger certainly provides additional resources Republic can use.

Waste Management will retain a 60% lead in market capitalization, with $18.8 billion compared to Republic Services' $11.5 billion. Though I personally favor Waste Management, I believe both companies represent excellent long-term opportunities for Fools looking to weather any economic climate.

Further Foolishness:

Republic Services is a Motley Fool Income Investor pick, while Waste Management is a selection of the Inside Value newsletter. Take any of our newsletters for a free test drive for 30 days.

Fool contributor Christopher Barker captains yachts and writes about stocks. He can also be found acting Foolishly within the CAPS community under the username TMFSinchiruna. He owns no shares in the companies mentioned. The Motley Fool has a disclosure policy.

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Related Tickers

12/5/2008 4:02 PM
AW $10.10 Down +0.00 +0.00%
Allied Waste Indus… CAPS Rating: *****
RSG $51.49 Up +0.54 +1.06%
Republic Services CAPS Rating: *****
WMI $28.50 Down +0.00 +0.00%
Waste Management CAPS Rating: *****