HOUSTON -- USA Waste Services Inc. said yesterday that it will buy United Waste Systems Inc. for $1.9 billion in stock and assumed debt, giving the third largest trash hauler in North America a fast-growing competitor that concentrates on small and midsize markets.
The transaction, designed to be tax-free, will create a company that operates 155 landfills and 270 garbage collection companies serving 3 million customers in the United States, Canada, Mexico and Puerto Rico.
The stock offer was valued at $1.7 billion, and USA Waste would assume $225 million in debt.
Investors were skeptical of the buyout, which would give shareholders of Greenwich, Conn.-based United Waste 1.075 shares of USA Waste for each of their shares.
United Waste shares closed down $4.25 to $33.375 yesterday. USA Waste shares closed down $3.375 to $31.875.
United Waste investors were expressing "extreme disappointment at the inadequacy of the offering" price, said Jeffrey Robins, an analyst at Gruntal & Co., who had a 12-month target price of $52 for United Waste. Some investors believed the stock would have been worth more if the company had remained independent, he said.
Significant trading by short sellers also contributed to the sell-off in the companies' shares, said William Fisher, an analyst with Raymond James.
Shares of both companies rose last week, apparently in anticipation of the transaction.
Top executives at the two companies said they were surprised by the market reaction, saying they have already identified $29 million in pretax cost savings that will lead to increased earnings as soon as the acquisition closes.
Investors are "starting to think there's something fundamentally wrong with United Waste, and that's absolutely not true," said John Drury, chairman and chief executive of Houston- based USA Waste. "There's a lot of confusion and misunderstanding."
Like USA Waste, United has grown through a rapid series of acquisitions, and intends to complete more.
"We are particularly enthusiastic about the $500 million in acquisition opportunities United Waste has identified in and around existing service areas," John Drury, chairman and chief executive of USA Waste, said in a statement.
Drury said his company's examination of United Waste over several week has led him to conclude that the company will exceed the current Wall Street 1997 earnings estimate of $1.50 per share, based on the average estimate of 11 analysts surveyed by IBES International Inc.
Buying the company will lead to additional earnings of at least 8 cents a share in 1998 for USA Waste, Drury added.
Standard & Poor put United Waste's debt on watch with positive implications, and affirmed USA Waste's ratings.
Brad Jacobs, chairman of United Waste, said his company makes a particularly good fit with USA Waste because it has focused on suburban and rural markets with revenue of $20 million to $50 million a year, while USA Waste has targeted major metropolitan areas. That means the two companies can combine their operations efficiently, he said.
"We're not seeking other bidders," Jacobs said.
United Waste and USA Waste will have combined revenue this year of more than $3 billion, Drury said, putting USA Waste close behind the No. 2 North American trash hauler, Houston-based Browning-Ferris Industries, with $5.78 billion in 1996 revenue.
The biggest hauler, WMX Technologies Inc., had $9.1 billion in 1996 sales, with about $6 billion of that in North America, Drury said.
Pub Date: 4/15/97