Allied Waste said Monday it's buying Browning-Ferris Industries for $45 per share, a 29 percent premium, in a deal worth $9.1 billion.
The merger combines the No. 2 (BFI) and No. 3 trash hauling companies, delivering $1.60 per share in earnings accretion for Allied Waste (AW) in 2000 and $2.10 in 2001, the companies claimed. The No. 1 firm remains Waste Management (WMI).
Shares of BFI gained 1 to 34 3/4 on Friday. Allied Waste fell 5 to 15. Waste Management gained 1 11/16 to 48 13/16.
At $45 per share, the purchase price is a 29 percent premium over BFI's Friday close of 34 3/4.
Allied Waste's two largest investor groups, Apollo Management IV, L.P. and Blackstone Capital Partners III, plan to purchase $1 billion in newly issued Allied Waste securities. Houston-based BFI will be bought for $45 per share in cash and the assumption of $1.8 billion in debt.
The deal creates a company to be called Allied Waste Industries with $6.6 billion in annual revenues and a national network of landfill, collection, transfer, recycling and other operating assets.
Allied Waste CEO Thomas H. Van Weelden will head up the new firm.
"The application of our proven, successful vertical-integration strategy and decentralized operating structure to the combined asset base will put Allied Waste in a position to be the low-cost operator in the areas it serves," Weelden said in a statement.
Allied Waste said it sees $290 million of synergies and cost savings in the initial 12 months after close of the transaction.
In the first year, Allied Waste expects to collect $900 million by selling non-strategic businesses and completing required divestitures. The money, combined with more than $200 million of free cash flow generated by the company's operations, will be used to reduce debt.
Excluding charges, Allied Waste expects the transaction to be accretive to earnings in calendar year 2000 and beyond. The company anticipates operating earnings per share to be $1.60 in 2000, and $2.10 in 2001.
Commitments to purchase an aggregate of $1 billion of convertible preferred stock have been obtained from an investor group led by affiliates of Allied Waste's two largest shareholders, Apollo Management IV, L.P. and Blackstone Capital Partners III.
Other investors include DLJ's (DLJ) Merchant Banking Partners II, L.P. and Citigroup (C) affiliate Greenwich Street Capital Partners. The preferred stock to be issued will pay a 6.5 percent dividend and will be convertible into Allied Waste common stock at a price of $18 per share.
Along with the equity commitments described above, Allied Waste has obtained commitments from a bank group led by The Chase Manhattan Bank (CMB) for $9.5 billion in senior financing to provide funds to complete the acquisition, and to provide working capital for Allied Waste following consummation of the acquisition.
Written By Steve Gelsi, CBS MarketWatch