Republic, Allied Waste deal seen good for industry

By Helen Chernikoff - Analysis

NEW YORK (Reuters) - The take on Republic Services Inc's (RSG.N: Quote, Profile, Research) bid for Allied Waste Industries (AW.N: Quote, Profile, Research) depends on who you ask, with analysts seeing potential for higher trash hauling industry prices if it happens and investors worried that antitrust enforcers will object for the very same reason.

Despite rising a bit on Tuesday, shares of both companies are down since Friday's confirmation of a deal in which Allied Waste shareholders would get 0.45 Republic Services shares for each of theirs, valuing Allied Waste at more than $6 billion.

Investors might also be fretting at the memory of past underwhelming trash hauler combinations, said Tim Ghriskey, chief investment officer of Solaris Asset Management, which follows the industry but does not own trash hauler shares.

"You still have the same routes to cover, it's the same high gas prices, it's still diverse geographies," he said. "It's not like you can close down local facilities or get rid of trucks."

Since Friday, Republic Services shares are off 4.8 percent at about $32, while shares of larger rival Allied Waste have shed 6 percent to about $14. The broader Standard & Poor's 500 .SPX index is down 0.6 percent.

Those drops followed good gains for both since late March -- 32 percent for Allied Waste and 11.5 percent for Republic Services -- so profit-taking might explain some of the sell-off of both stocks, said Morningstar analyst Brian Nelson.

But their slump could also reflect investor concerns that the Justice Department would object to the deal on antitrust grounds, Nelson said.

The largest U.S. trash hauler, Waste Management Inc (WMI.N: Quote, Profile, Research), and Allied Waste and Republic Services, the next two biggest, already account for more than 60 percent of the U.S. landfill business, Merrill Lynch analyst Jonathan Ellis wrote in a note to clients.