According to the U.S.-based Waste Business Journal (www.wastebusinessjournal.com), the board of directors of Republic Services, Inc. has unanimously rejected Waste Management’s $6.3 billion offer to purchase the company as an alternative to Republic’s plans to merge with Allied Waste Industries. In a letter to Waste Management CEO David Steiner, James O’Connor, Republic’s chairman and CEO, suggested that Waste Management’s offer of $34 per share for Republic’s stock was not significantly higher than the stock’s recent trading levels, and he noted that “the merger between Republic and Allied will create significant value-generating opportunities, including significant cost saving synergies.” By comparison, “a transaction with Waste Management will involve significant additional regulatory complexities and delays compared to the merger between Republic and Allied given the greater number of overlaps and the requirement to comply with Waste Management’s 1999 consent decree.”
In response, Waste Management issued a press release expressing the company’s disappointment at the Republic board’s “unwillingness to consider Waste Management’s proposal as one that could reasonably be expected to lead to a superior proposal.”
According to the Waste Business Journal analysis, Waste Management will have to sweeten its bid to be taken seriously. It is likely that the company views the Republic-Allied merger as vulnerable in the eyes of Wall Street and as a threat to its national accounts business with the formation of a more formidable number two competitor. Antitrust concerns preclude the viability of a merger with Allied, so Republic is a good play, especially now that it is on the dance floor. The cynical view is that the proposal is meant only to disrupt the Republic-Allied merger or worse, is a ploy to extract detailed operating data on a competitor. However, Republic’s landfills in the Midwest and southeast would compliment Waste Management’s portfolio, while Las Vegas adds an important growing market. Waste Management’s least desirable alternative would be to wait around for others to consolidate the market, particularly companies like Veolia or Waste Connections. Veolia, with a lower profile in the US market, is huge internationally with a market capitalization of $24 billion that gives it the wherewithal and motivation to make such a move.
Here is the Waste Management news release:
Waste Management Responds to Republic Services
July 18, 2008
Waste Management, Inc. (NYSE: WMI) today issued the following statement in response to the announcement by Republic Services, Inc. (NYSE: RSG) (“Republic”) that its Board of Directors rejected Waste Management’s $34.00 per share all-cash proposal.
We are disappointed in the Republic Board of Directors’ unwillingness to consider Waste Management’s proposal as one that could reasonably be expected to lead to a superior proposal. Waste Management’s Board and management team are well advised and will evaluate the Company’s options.
On July 14, 2008, Waste Management announced that it had made a proposal to the Board of Directors of Republic to acquire all of Republic’s outstanding common stock for $34.00 per share in cash. Waste Management’s proposal represents a premium of approximately 22 per cent over the closing price of Republic stock on July 11, 2008, the last trading day prior to public disclosure of Waste Management’s proposal. The Company believes that a transaction with Republic would close early in 2009.
About Waste Management
Waste Management, Inc., based in Houston, Texas, is the leading provider of comprehensive waste management services in North America. Through its subsidiaries, the Company provides collection, transfer, recycling and resource recovery, and disposal services. It is also a leading developer, operator and owner of waste-to-energy and landfill gas-to-energy facilities in the United States. The Company’s customers include residential, commercial, industrial, and municipal customers throughout North America.
This press release contains forward-looking statements regarding, among other things, the proposed acquisition of Republic by Waste Management and the anticipated consequences and benefits of such acquisition, and other financial and operational items relating to Waste Management and Republic. Statements made in the future tense, and statements using words such as “intends,” “estimates,” 2 “expects,” “projects,” “plans,” “anticipates,” and “believes,” and similar expressions are intended to identify forward-looking statements. Forward-looking statements are not a guarantee of performance and are subject to a number of risks and uncertainties, many of which are difficult to predict and are beyond the control of Waste Management. These risks and uncertainties could cause actual results to differ materially from those expressed in or implied by the forward-looking statements, and therefore should be carefully considered. Relevant risks and uncertainties relating to the proposed transaction include, but are not limited to: the risk that required regulatory review and approval may not be obtained in a timely manner, if at all; Republic’s directors and stockholders may not approve the proposed transaction; the anticipated benefits and synergies of the proposed transaction may not be realized; the integration of Republic’s operations with Waste Management could be materially delayed or may be more costly or difficult than expected; financing may not be available or may not be available on satisfactory terms; the reaction of the credit markets (including rating agencies) to the proposed transaction and expected refinancings may not be as anticipated; the proposed transaction may not be consummated; and legal proceedings may be commenced against Waste Management. For a description of relevant risks and uncertainties generally applicable to Waste Management, please see Waste Management’s filings with the Securities and Exchange Commission, which are available on Waste Management’s website or at www.sec.gov. In providing forward-looking statements, Waste Management does not intend, and is not undertaking any duty or obligation, to update these statements as a result of new information, future events or otherwise.
BGI Statement on Proposal by Waste Management, Inc. to Acquire Republic Services, Inc.
July 18, 2008
BGI, the investment office that manages the assets of Cascade Investment, L.L.C. and Bill & Melinda Gates Foundation Trust, owning in the aggregate approximately 15.6 per cent of Republic Services, Inc. (“Republic”) and 2.3 per cent of Waste Management, Inc. (“Waste”), today announced that it would not support the recent proposal made by Waste to acquire Republic. BGI’s reasons include:
— At $34 per share, BGI believes Waste’s unsolicited cash offer significantly undervalues the business of Republic. Republic’s shares traded above the offer price as recently as June 13, 2008 and it is the belief of BGI that the fundamentals of the business have not changed materially since that time. Waste’s strong preliminary earnings report on July 14, 2008 is only confirmation of current industry conditions.
— BGI views the Waste proposal as hastily made, lacking in strategic rationale, and designed to impede the pending transaction between Republic and Allied Waste Industries, Inc. (“Allied”).
— BGI believes the regulatory process will be arduous and risky under the Waste proposal. While any transaction involving market competitors is likely to include divestitures, the larger scale of the combined companies, local market dynamics, and the 1999 consent decree point to significant divestitures of high quality assets under Waste’s proposal. BGI views this as a significant risk that will likely add delay and uncertainty to the transaction.
— The preliminary cost synergies proffered by Waste do not exceed those anticip
ated under Republic’s current stated strategic course of action and also lack suffic
ient clarity. Given the significantly larger scale and additional risks of a potential transaction with Waste, BGI believes that the Waste proposal carries a high synergistic hurdle.
— It is the opinion of BGI that there is significant risk to the Waste proposal with regard to financing an all-cash deal, especially given current market conditions. This could lead to delay, uncertainty, or an inability to complete the transaction. BGI further believes that there is significant risk that the combined entity will not be able to sustain an investment grade credit rating.
— BGI believes that Republic has the best management team in the industry and is confident in management’s stated course of action, which promises to retain key management personnel from Republic in their present positions, including CEO James O’Connor and CFO Tod Holmes.
While BGI appreciates the extraordinary strides that Waste has made in recent years under CEO David Steiner from the business issues it faced earlier in the decade, BGI believes that Waste still has a long road to travel towards reaching best execution. As a result, BGI believes that this negatively reflects on Waste’s ability to integrate and manage a transaction of this magnitude and steward the well-run business of Republic.
As a long-term shareholder of Republic, BGI believes that superior value for Republic’s shareholders will be realized through the continued pursuit and eventual completion of the strategic course of action previously agreed to between Republic and Allied. Similarly, BGI believes that Waste shareholders will be best served in the long run by Waste continuing to focus on improving its existing operations.
Cascade Investment, L.L.C, is wholly owned by William H. Gates III. Bill & Melinda Gates Foundation Trust owns and manages the assets that fund Bill & Melinda Gates Foundation.