Browning-Ferris to buy Western Waste in stock swap.

Deal for trash hauler is valued at about $520 million

Western Waste Industries, the Torrance-based trash hauler which holds the most exclusives residential waste contracts in Southern California, has signed a letter of intent to be acquired by Browning-Ferris Industries Inc. for about $520 million, the companies jointly announced last week.

Houston-based BFI, the second-largest trash hauler in the U.S., with $3.4 billion in annual revenues, has agreed to acquire Western Waste, with $230 million in annual revenues, through a stock swap.

Peter Block, a BFI spokesman, said Western Waste's network of 90 contracts throughout the U.S., with many of those contracts in Southern California, was "a major part" of the reason for the acquisition. BFI had decided earlier this year that "Los Angeles is a major market, and we need to get more involved in it," Block said.

Even before BFI entered into negotiations a few months ago, it had planned to move its Western U.S. regional office from San Jose to Los Angeles. That office will now be merged with Western Waste, Block said. He did not disclose the merged office's new location.

In the agreement announced Sept. 2, Western Waste shareholders are to receive 1.02 shares of BFI stock for each share of their common in the deal. Western Waste's stock was trading at $17 a share on Sept. 1 and BFI's at $24.87.

Western Waste founder and Chairman Kosti Shirvanian and his family own 40 percent of the firm's 14 million outstanding shares, which are traded on the New York Stock Exchange. Shirvanian is slated to head the new L.A. regional BFI headquarters and become a member of BFI's board.

The merger deal would have to be renegotiated and could possibly fall through if BFI's common stock falls below $20 a share or rises above $30 before the transaction is completed, Block said. BFI's stock price fell 37 cents in the first few hours after the merger was announced.

Rumors and then the company's confirmation that it was indeed in merger talks drove up Western Waste stock price 60 percent in the week before the merger was announced. Block said he did not know how news of the talks had leaked.

Western Waste's stock closed at $17 a share on Sept. 1, its 52-week high, up from $10.75 on Aug. 24. The stock was the biggest percentage gainer on the Big Board on Aug. 26 and Aug. 27.

On Aug. 26, the company reported, "in response to market activity in its stock" that it was engaged in "preliminary discussions" with other companies about a merger.

Donald Zwyer, a special situations analyst at the New York-based investment firm of Salomon Bros. Inc., issued a report on Aug. 30 that Western Waste was a takeover target for a number of reasons, including the election of L.A. Mayor Richard Riordan.

Riordan has made several public statements that he favors privatizing Los Angeles' residential garbage collection services, which are currently being performed by the city-owned Bureau of Sanitation, Zwyer noted.

But Zwyer said Western Waste's lock on more than 90 municipal contracts is its most attractive asset. "Western Waste's market share in the L.A. solid waste collection business is approximately 17 percent, well above that of its competitors," he said.

Western Waste's ability to nab multi-year, multimillion-dollar municipal contracts has drawn protests from other local waste haulers. Ironically, local BFI officials have been among the most vocal in protesting the local municipal contract awards to Western Waste.

"Well, they won't protest them in the future," Block said.

He added that he did not know if the merger would result in further job losses in Southern California. "It's too early to tell. We don't know if there is duplication or where there is duplication," Block said.

Jack Kyser, chief economist for the Economic Development Corp. of Los Angeles County, said the merger will likely hurt the county's economy, even though BFI will site its West Coast headquarters in L.A. He noted that Western Waste employs 1,800 nationwide and 100 at its L.A. headquarters, while BFI employs 30,000 nationwide.

"Basically, there will be some job losses," Kyser predicted. "This is a corporate headquarters that is stepping down to a regional headquarters."

In May, Western reported a net loss of $9.1 million, or 71 cents a share, for its fiscal third quarter ended March 31, due to an $18 million charge related to development of landfills.

Revenues were at $57 million, off slightly from the year-earlier $58.1 million. It blamed the recession, which causes a decrease in trash generation.

Notably, in July, Western Waste was put on notice by San Jose officials that it was in danger of losing its $80 million municipal trash contract after residents there registered more than 36,000 complaints about poor service and garbage piling up in the streets.

Block said, in recent weeks, the San Jose situation has been "resolved," and city officials there have been notified that Western Waste will be merged into BFI.