USA Waste to buy Waste Management $20 billion deal would combine 2 of top 3 companies

Refuse disposal

March 12, 1998|By BLOOMBERG NEWS

HOUSTON -- USA Waste Services Inc. agreed yesterday to buy Waste Management Inc. for $20 billion in stock and assumed debt, combining two of the three largest U.S. waste-disposal companies to cut costs and boost earnings.

USA Waste will pay 0.725 share for each Waste Management share, valuing Waste Management at $28.37 each, a 13 percent premium to Tuesday's closing price. Waste Management shareholders will own 60 percent of the combined company, which will be called Waste Management but be based in Houston and led by USA Waste Chief Executive Officer John Drury.

USA Waste's purchase of the No. 1 U.S. waste hauler would more than quadruple USA Waste's sales of $2.6 billion, making it twice as big as its nearest rival, Browning-Ferris Industries Corp. For Waste Management, the sale would cap months of floundering and management upheaval caused by a botched diversification effort.

"Waste Management obviously was adrift and needed focus, direction and discipline," said Merger Insight analyst Tom Burnett. "With USA Waste, they're going to get it."

Waste Management shares rose $4.0625 to $29.25 on the New York Stock Exchange, while USA Waste gained $3.875 to $43 a share.

Buying Oak Brook, Ill.-based Waste Management would be the 10th acquisition in four years for USA Waste and the crowning achievement of an acquisition strategy engineered by Drury.

The combined company would control about 20 percent of the U.S. waste-disposal industry, which is still dominated by municipal governments and regional haulers.

Robert Miller, acting chief executive of Waste Management, said he didn't expect serious regulatory barriers to the combination. He said the company is prepared to divest assets in certain markets to appease U.S. antitrust regulators.

That could be good news for No. 2 waste-hauler Browning-Ferris, which could purchase Waste Management and USA Waste assets in certain regions and increase market share.

"USA Waste is getting a very good deal and we're anticipating it will create opportunities for BFI," Browning-Ferris President and Chief Executive Officer Bruce Ranck said in a statement.

Houston-based Browning-Ferris, which had $5.8 billion in revenue last year, declined to say whether it might top USA Waste's bid.

Waste Management's $7 billion in debt would make up the bulk of the combination's debt of $10.3 billion, slightly less than its combined 1997 revenue of $11.8 billion. The companies expect debt to drop to $8.4 billion this year.

Miller said it was too early to say how many of the companies' combined 76,500 employees would be eliminated or how many facilities would close. Analysts say sizable job cuts are possible.

The companies said they anticipate annual cost savings of at least $800 million as they reduce duplication and reap other efficiencies. They said operating earnings per share should reach $2.90 to $3.05 a share in 1999 and $3.55 to $3.70 in 2000.

USA Waste, which had operating revenue of $2.6 billion last year, has been expanding rapidly through acquisitions, spending more than $1.3 billion last year to acquire waste-collection businesses and landfills throughout the United States and Canada.

Waste Management, which had 1997 revenue of $9.2 billion, last month announced a $1.5 billion fourth-quarter charge and cut its earnings back to 1992 by an additional $1.4 billion, undoing years of misleading accounting.

The action was the latest in a series of blows to the company, which has stumbled since trying to expand abroad and into hazard-waste management, environmental cleanup and related businesses. Its shares had plunged 29 percent through yesterday since September.

Waste Management's top job has changed hands four times in the last year as it searched in vain for a new chief executive who could right the company.

Waste Management's largest shareholder is billionaire George Soros' money management firm, which boosted its holdings in December to 22.8 million shares, or 5.01 percent of the total, from 22.6 million, according to filings with the Securities and Exchange Commission.

Soros Fund Management LLC's Waste Management stake would be worth about $575 million, based on Tuesday's closing price.

Pub Date: 3/12/98

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