USA Waste to Buy Waste Management for $14.8 Billion

Scrappy trash hauler USA Waste Services Inc. has pulled off a coup, saying Wednesday that it is acquiring Waste Management Inc., the nation’s largest trash-hauling business, in a deal valued at more than $14.8 billion.

The combination of two of the three largest American waste-hauling businesses would create the world’s largest garbage company, controlling about 20% of the U.S. market.

The merger would cap a four-year buying binge for Houston-based USA Waste and end a period of turmoil for Waste Management, during which it has been rocked by allegations of financial improprieties, a revolving door of executives and shareholder discontent.

USA Waste will offer 0.725 of its shares for each Waste Management share and give Waste Management shareholders about 60% of the combined company. The offer values Waste Management shares at about $28.37 each, a 13% premium to their closing price Tuesday.

USA Waste also would assume $7 billion in debt.

The new company, which is to retain the Waste Management name, would compete more effectively by cutting costs through such moves as consolidating routes, eliminating duplicate facilities and slashing an undisclosed percentage of its combined work force of 76,500, executives said.

The companies anticipate annual savings of at least $800 million.

“For many years, we see significant growth in the bottom line of this company,” said USA Waste Chairman and Chief Executive John E. Drury, who would become CEO of the merged company.

Investors apparently agreed, sending both companies’ stocks sharply higher. Waste Management rose $4.13, or 16.4%, to close at $29.31, and USA Waste gained $3.88, or 10%, to $43. Both trade on the New York Stock Exchange.

The purchase would complete an aggressive acquisition strategy Drury embarked on when he took the helm in 1994. Waste Management would be his firm’s 10th purchase in four years.

Analysts called the merger a win for both Oak Brook, Ill.-based Waste Management and the trash-hauling industry.

“If anybody can come in and turn around Waste Management, USA Waste can do the best job,” said Stacy Gray of First Analysis.

Company officials said they do not expect federal antitrust problems, because 80% of the market would still be open.

However, analysts and antitrust experts said the Justice Department is expected to closely examine certain markets where the companies control much of the business and could force them to sell or divest certain assets.

“What they are going to look at is a series of local markets for picking up commercial trash,” said Donald I. Baker, a Washington lawyer who headed the Justice Department’s antitrust division during the Ford administration. “So they are going to look at what the alternatives are” in local markets.

Last summer, USA Waste agreed to sell a western Pennsylvania landfill to clear the way for its $2.2-billion acquisition of United Waste Systems Inc. The sale was made to resolve Justice Department concerns that it would control 60% of the waste disposal business in one county.

However, the department failed in 1984 to stop Waste Management’s acquisition of a rival trash business in the Dallas area, even though the combination gave it a 48.8% share of the local market.

Waste Management has 58,800 employees worldwide and generated $9.2 billion in revenue last year. USA Waste Services employs 17,700 and had $2.6 billion in revenue in 1997. It hauls garbage for commercial and residential customers in 48 states, Canada, Mexico and Puerto Rico.

“We’re absolutely delighted,” said Nel Minnow, a principal in Lens Inc., which owns about 400,000 Waste Management shares. “This couldn’t have solved Waste Management’s problems any better. You’ve now got a company with great assets combined with a company with a great management team.”

Waste Management became the leader in the garbage-hauling industry over the last few decades as it and No. 2 Browning-Ferris Industries Inc. consolidated hundreds of small, local garbage haulers into giant waste conglomerates.

But Waste Management has had financial problems this decade, and founder Dean L. Buntrock resigned from the board at the end of last year.

Last month, Waste Management adopted less-aggressive bookkeeping and restated its earnings back to 1992, leading to $3.54 billion in pretax charges.

Waste Management posted a net loss of more than $1 billion last year, and USA Waste showed a profit of $267 million.

In addition to federal regulatory approval, the merger requires the consent of each company’s shareholders. It is expected to be completed by fall.