Will Waste Management Haul Off Republic?
By
David Lee Smith
August 12, 2008
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We'll have to wonder for a while whether Microsoft (Nasdaq: MSFT) founder Bill Gates could end up trashing a deal between a couple of waste haulers. Sound bizarre? It really isn't: Gates controls a 15%-plus stake in Republic Services (NYSE: RSG), the target of a sweetened offer from garbage-hauling king Waste Management (NYSE: WMI).
The revised offer of $6.7 billion arrived early this week, about a month after Waste's initial $6.3 billion offer for Republic. That first offer itself followed Republic's own bid for Allied Waste (NYSE: AW), the industry's second-largest company. Waste's first offer for Republic was rebuffed by the target company, in favor of completing its planned deal with Allied.
In its revised proposal, in order to demonstrate its determination to complete the deal, Waste proposed paying a $250 million fee if the deal is scuttled on the basis of Justice Department opposition (since a combined Waste Management/Republic Services would control nearly half the U.S. waste-hauling market). At the same time, the company has proposed a "ticking fee," which would increase the $37 per-share offer in the event that the deal is delayed by antitrust considerations.
Waste also emphasized that it has confirmed the financing for the deal, and said it now believes that the proposed combination would exceed its original $150 million estimate for cost synergies by 25% to 35%. It further believes that its "post-transaction financial profile" would permit the company to remain investment-grade and that the deal would add to earnings in the first year following closing.
Whatever happens, the waste industry seems destined for a big change. Its biggest company may be poised to become larger still. But something tells me that we may not have seen the final bid to buy up Republic.
Waste Management is a five-star selection among Motley Fool CAPS players. Perhaps you should waste time in adding your opinion.
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