Waste Management backing off Republic?

Fort Lauderdale, Fla.-based Republic Services (NYSE: RSG) could be in the clear for its merger with Phoenix's Allied Waste Industries (NYSE: AW). Houston-based market leader Waste Management (NYSE: WMI) appears to be softening its stance on its bid to buy Republic, which would have blocked a Republic-Allied merger, the No. 3 and No. 2 companies in the industry.

In a filing with the U.S. Securities and Exchange Commission, Republic said it was contacted late last month by David Steiner, CEO of Waste Management, who said that while he was still interested in a merger with Republic "he acknowledged that the current credit market environment made acquisition debt more expensive and a transaction less attractive to Waste."

In addition to landfill and garbage collection services, all three companies have significant recycling operations, as well as landfill gas to energy operations.

Republic and Allied announced their merger plans in June, with the deal valued at over $6 billion in Republic stock at the time (see Republic to buy Allied Waste for over $6B in stock).

Republic has already locked down financing for the deal, announcing last month that it completed a $1.75 billion credit facility arranged by Bank of America and J.P. Morgan. Republic said the new credit facility, along with an existing $1 billion facility, will provide it with all of the financing needed to consummate the merger.

In August, Republic turned down a second takeover offer from Waste Management, a $37 per share cash bid, up from $34 (see Republic again rejects Waste Management).

Although Waste Management may be backing off from its bid for Republic, it could still be interested in a smaller deal. Republic said in its filing that Steiner "expressed an interest" in buying any assets that would be divested as a result of a Republic-Allied combination.

Will Flower, spokesman for Republic, told the Cleantech Group, "There will be assets that have to get sold. Who they get sold to or what markets they get sold in have not been determined."

There's still no word on what assets will need to be divested, with Flower saying the U.S. government will provide that information in a consent decree.

A spokeswoman for Waste Management would not comment on Republic's filing, saying only that Waste Management had no update on its bid for Republic beyond what it's already made public.

In August, about a week and a half after Republic turned down Waste Management's second bid, Waste Management announced that it received a second request for information from the Antitrust Division of the U.S. Department of Justice in connection with its plans to acquire Republic. Waste Managemet said it intends to respond promptly and continue to cooperate with the DOJ's review.

Republic said that after a merger with Allied it expects to generate annual revenues of $9 billion and operate 218 landfills, 254 transfer stations, 427 collection companies and 86 recycling facilities serving over 13 million customers in 40 states and Puerto Rico.

At the time of the merger announcement in June, Republic said it had eight landfill gas to energy projects operating, eight under contract negotiations, and another eight that it's looking at developing. Allied said that it has 60 landfill gas to energy projects in operation, with another 13 under development.

Republic expects its merger with Allied to close in the fourth quarter of 2008.