Waste Services Industry Consolidation Attempts

Republic Services Inc. (NYSE: RSG), currently trading at $33.06 at Monday's closing bell, is in demand. As the waste industry moves to consolidate, three of the top players are jockeying for the dominating position. The current industry leader, Waste Management (NYSE: WMI) originally announced $34/share bid for Republic Services on July 11^th, and more recently raised that offer to $37/share. Republic Services has rejected both bids saying that the company is worth substantially more than that as an independent entity.

Waste Management made its initial offer as a response to the merger, announced June 23^rd, between Republic Services and Allied Waste Industries (NYSE: AW). The merger would combine the 2^nd and 3^rd largest solid waste services companies in a bid to rival the current dominance of Waste Management.

At What Price?

In what has been an uncivil discourse to date, Republic Services continues to tell Waste Management that its bids are unwelcome and the company is not for sale. Republic Services has refused to engage in ongoing talks with its insistent suitor. Waste Management has said it will evaluate its options in light of the most recent rejection.

Does this mean an even higher bid? Waste Management seems determined to hold on to its number one position, but how much more can they offer?

At some point, there is a number that Republic services must consider out of fiduciary duty to its shareholders. Some industry analysts have said $40/share would be a fair valuation while others say that is too high a price and would negatively impact the buyer's financial status. Remember that Republic was trading for a low of under $28/share as recently as July 11^th. With news of the $37 offer, Republic briefly traded over $35 last week, but retreated as it became clear that its management would not accept the revised offer.

Anti-trust Issues?

A combination between Waste Management and Republic Services would dwarf the nearest remaining competitors, and position the giant well for future power plays. Such a deal would likely arouse the interest of the Justice Department's anti-monopoly watchdogs as well. So it isn't entirely clear that even if Waste Management could put together a deal acceptable to Republic Services that it would be allowed to go through anyway.

Even without Justice Department approval, however, such a deal would have the effect of preventing or substantially delaying any merger between Allied Waste and Republic Services. The latest offer from Waste Management offer included a provision for a $250 million payment to Republic if the acquisition were to be blocked by the Justice Department.

Disclosure: None