Republic to buy Allied Waste

Republic Services Inc. agreed Monday to buy larger rival Allied Waste Industries Inc. for $6.1 billion to become North America’s second-largest trash hauler as a weaker economy and rising fuel prices strain waste-removal companies.

Allied investors will receive 0.45 Republic shares for each share they hold, the companies said. The price is 3.5% higher than Phoenix-based Allied’s Friday closing price.

Republic Chief Executive James O’Connor will lead the company, which will retain the Republic name and trail only Waste Management Inc. in waste-hauling. Trash companies have raised prices and dropped less-profitable routes as fuel prices soared and U.S. home building slowed, cutting demand for construction-debris removal.

“It’s a way of creating a bigger company, to be a No. 2 player to Waste Management,” Standard & Poor’s analyst Stewart Scharf said. “It’s a way of reducing costs further as they try to improve the top line.”

Allied Waste shares fell 27 cents, or 2%, to $13.29. Shares of Fort Lauderdale, Fla.-based Republic fell 21 cents to $30.98.

Waste-management companies’ incomes have been pulled down by the declining U.S. housing market, which is at its weakest in almost three decades. Sales for the Republic unit that deals with bulky refuse for customers including builders dropped 15% in the first quarter, after declining by the same margin in the second half of last year, the firm said.

Scharf estimates that Republic will have about 17% of the national market after the merger, still smaller than Waste Management’s 25%.