Trash-Hauling Giants To Merge Usa Waste Services To Acquire Waste Management

Scrappy trash hauler USA Waste Services Inc. pulled off a coup Wednesday, announcing it was acquiring 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 percent of the U.S. market.

The merger would cap a four-year buying binge for USA Waste and end a period of turmoil for Waste Management Inc., 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 percent of the combined company. The offer values Waste Management shares at about $28.37 each, a 13 percent premium to its closing price Monday. USA Waste also will assume $7 billion in Waste Management debt.

The new company - which is to retain the Waste Management Inc. name - would compete more effectively by cutting costs through such moves as consolidating routes, eliminating duplicate facilities and slashing an undisclosed number of its combined work force of 76,500, executives said. They expect to save $800 million a year.

Waste Management Inc. owns Wheelabrator Spokane Inc. and its parent company, the operators of Spokane’s waste-to-energy plant.

The company has several other disposal facilities in the Northwest, including a hazardous waste dump in eastern Oregon. Its plan to build a regional mega-dump near Washtucna was delayed last year as the parent company’s business problems mounted.

“Our merged company will have a lot going for it,” said USA Waste Chairman John E. Drury. He will become chief executive of the merged company, which will be based in Houston.

“For many years, we see significant growth in the bottom line of this company,” he said. “We will combine many of the best assets and most successful corporate and field managers in the waste services. We’re looking at the best of the best.”

Investors apparently agreed, sending both companies’ stocks sharply higher. Waste Management rose $4.12-1/2 per share, or 16.4 percent, to close at $29.31-1/4 on the New York Stock Exchange, while USA Waste gained $3.87-1/2, or 10 percent, to $43 a share.

The purchase completes an aggressive acquisition strategy Drury embarked upon when he took the helm in 1994, with Waste Management being the 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. USA Waste “has one of the best management teams in the industry, with a reputation for being lean and efficient, and will be effectively taking over Waste Management.

“For the industry, this helps because Waste Management has been highly competitive in most markets, with low prices that kept its competitors from raising their prices,” she said. “You can expect the new company to begin raising rates.”

Waste Management has 58,800 employees worldwide and generated $9.2 billion in revenue last year. It has operations across the United States, Canada and select international markets.

USA Waste Services, based in Houston, 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.

In the merger, each of the approximately 455 million shares of Waste Management will be exchanged for 0.725 shares of USA Waste common stock. Waste Management shareholders would get 345 million USA Waste shares in the deal.

“We’re absolutely delighted,” said Nel Minnow, a principal in Lens Inc., which owns some 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 currently accounts for about 15 percent of the U.S. trash-hauling business, while USA Waste has 5 percent.

Company officials said they do not expect federal antitrust problems since 80 percent of the market would still be open. Analysts and antitrust experts said, however, that 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.

Waste Management became the leader in the garbage-hauling industry over the past 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, while USA Waste showed profits of $267 million.

The merger is subject to approval by the shareholders of each company.