Western Waste Abandons Planned Merger : Trash: The Torrance company and Houston-based BFI say only that they couldn’t agree on terms.
Western Waste Industries Inc. of Torrance said Friday that it has abandoned plans announced last month to merge into the nation’s second-largest waste management company, Browning-Ferris Industries Inc. of Houston.
The two companies, which had signed a letter of intent to merge in a stock swap valued at the time at $520 million, said they were “unable to agree on the definitive terms” of the merger, which was to have been completed in four to six months.
Western Waste shares plunged Friday, falling $6.75 to $11. Shares of BFI rose 62.5 cents to $24. Both companies trade on the New York Stock Exchange.
Neither company would comment on the details that stalled the deal. But when the merger was announced, analysts said that the price--twice Western Waste’s annual revenue--might have been too high. The agreement had called for BFI to exchange 1.02 shares of its stock for each share of Western.
Last month, analysts predicted the merger would probably lead to reductions in Western’s 1,700-employee work force, which includes 900 in Southern California.
Andy Barish, environmental analyst at Robertson, Stephens & Co. in San Francisco, said a key to the proposed merger was to have been cost cutting at Western Waste, which he estimated might have saved $20 million in overhead and administrative expenses.
Another analyst speculated that BFI broke off the deal.
“I suspect it has to do with how BFI was going to realize cost savings,” said Charlie LoCastro, vice president of research at Donaldson, Lufkin & Jenrette in New York. “BFI was going to have to make pretty deep cuts.”
In LoCastro’s view, Western Waste was unwilling to make the cuts that a merger would have required, and BFI was unwilling to do the deal without those cuts.
Western Waste, the largest trash hauling company in Los Angeles County, had often edged out BFI and other larger trash haulers in municipal contract negotiations. The company, with $230 million in revenue in 1992, has trash hauling contracts with 93 cities, with more than two-thirds of its business in Southern California. It also hauls trash in Texas, Florida, Louisiana, Colorado and Arkansas.
Under the merger agreement, Western Waste would have operated as a subsidiary of BFI. Its president, Kosti Shirvanian, would have remained in his position.
BFI, with $3.2 billion in annual revenue, saw in Western Waste a chance to extend its reach beyond the commercial sector in Southern California to residential waste services. But in the month after the merger was announced, BFI also announced plans to acquire a 50% stake in the German Otto Holding International solid waste business for $375 million in cash and common stock.
“They were trying to do two large deals at once,” said LoCastro. “That’s never easy.”
BFI has been on an aggressive campaign to bolster its position against Waste Management Inc. of Oak Brook, Ill., the nation’s largest trash company. It bought 45 regional trash haulers in its most recent fiscal year.
On Sept. 7, BFI announced that it had acquired the assets of Bay Cities Services Inc., a smaller waste hauler in San Diego.
“I’m sure Southern California is a market they like a lot,” said Barish. “But there is really nothing comparable in terms of (Western Waste’s) size. They would have to acquire smaller companies.”
