Australian rival swallows NZ garbage firm

Waste Management has given up ambitions to go it alone across the Tasman and will instead be swallowed by a transtasman rival to create the biggest rubbish disposal company in Australasia.

In a proposal that saw the company's shares rocket $1.48 to $8.47 yesterday, the landfill operator and rubbish collector disclosed plans to merge with Transpacific Industries, the leading player in the liquid and hazardous waste sector in Australia.

Effectively a takeover, the proposal will see Waste Management become part of Transpacific's New Zealand subsidiary.

The larger company will then use its combined clout to chase the acquisition of Australia's largest waste disposal business, Cleanaway, which is up for sale and which Waste Management had been viewing as an opportunity for a quantum growth leap across the Tasman.

Shareholders are being offered $8.64 a share cash under the proposal - the agreed price of $8.80 minus a recent dividend of 15.8c a share - which is 33 per cent more than the average price the stock has traded at during the past month.

The deal values Waste Management at $885 million and has the unanimous support of the company's board. It needs 75 per cent shareholder approval to go ahead and they will vote on the offer in May and, if approved, the merger is expected to be completed by June.

Chief executive Kim Ellis said the merger made for a stronger story than if Waste Management continued on its own in Australia, where it has had "modest" success since 2001.

Although fast tracking the process through a merger had always been a possibility, the timing had been accelerated by Cleanaway being put on the block by Anglo-Australian group Brambles.

"And partly to avoid the possibility of being left as a very little player over there if we missed out."

Ellis, an Australian, will head the solid waste operations for the merged company after the deal.

As part of the merger, Transpacific also plans to list on the NZX.

Ellis had mixed views on the company's exiting New Zealand ownership, having built a strong position here and producing a good run of results.

But on the other hand, "The only reason we've got a great offer is because the company's doing really well and has got a great future, and that's how you get a great offer".

Ellis thought it unlikely another player would come out of the woodwork and was confident shareholders would accept the $8.64 a share.

"They can go and buy a bach or invest in Transpacific or take a holiday. So for them, it's a fantastic deal - they get a multiple they wouldn't have got ordinarily."

Paul Richardson, equities portfolio manager at BT Funds Management New Zealand, said the price was "excellent".

"It's cash, there's no sort of caveats or whatever and then it seems that the combined business will be more successful," he said.

But Fisher Funds chief investment officer Warren Couillault had yet to be assured the price was right.

"The only thing you can say is that it's above Friday's price, but whether or not that makes it a good price - we still need to do some work to make that determination."

The merger is expected to result in $30 million in synergy benefits for Transpacific, with earnings per share forecast to increase by 20 per cent in 2007.

THE COMPANIES

Transpacific Industries Group

* Australia's largest provider of industrial services and rubbish disposal solutions, with a focus on liquid and hazardous waste.

* Majority-owned by company founders, the Peabody family.

* Market capitalisation: A$1.2 billion.

Waste Management New Zealand

* Largest rubbish collection and disposal business in New Zealand.

* Valued at $885 million under the amalgamation.

THE PROPOSAL

* Waste Management has agreed to merge with Transpacific Industries.

* Shareholders are being offered $8.64 cash a share.

* Waste Management will seek shareholder approval in May.

* The merged company plans to list on the NZX.- additional reporting: Owen Hembry