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Waste wars; American Waste may be taking on two larger competitors, but its backers have loads of experience and capital.



American Waste Inc. is out to trash its competition in the lucrative business of private garbage pickup and disposal.

The new company, when it incorporated last November, took on two major contenders in a fiercely competitive local market, Browning Ferris Industries of Arkansas Inc. and Waste Management of Little Rock, the parent companies of which are listed on the New York Stock Exchange.

Worldwide, BFI had sales of $2.1 billion as of September 1988 and Waste Management Inc. took in $3.6 billion in revenues last year. No figures are available on American Waste or revenues generated from waste disposal in central Arkansas.

The initial competition in central Arkansas moved into the courtroom in April when BFI sued American Waste over the smaller company's aggressive sales tactics -- maneuvers that BFI saw as a raid on its client base.

BFI, which is seeking a total of $300,000 in damages from American, won a temporary injunction in Pulaski County chancery court against the smaller company. A final trial date in circuit court has not been set.

At first glance, American's entry into the local market looks like the classic David and Goliath business story. However, American didn't come out of nowhere.

Its startup represents a re-entry into the commercial waste disposal business for principal investors Sen. Ben Allen of Little Rock and one of his partners in the National Holding Co., Jerald Barnett.

Their background in the garbage business stacks up, even against the big boys -- in the '70s, Allen, Barnett and other associates in the National Holding Co. owned the country's largest group of independent waste hauling services, from Phoenix to Savannah.

They've also say they have enough investment capital to wage a serious war. That financial stability is due in part to the investors' past ties to BFI.

According to documents at the Secretary of State's office, BFI got into the Arkansas market in 1985 when it bought Metro Waste Inc., valued then at almost $12 million. Allen and Barnett had owned Metro since 1973.

Allen, who said he got rid of "a good slug of BFI stock" about six months after the sale, is listed on incorporation filings, along with Barnett, as members of the board of directors of BFI of Mississippi, which incorporated in September 1987 to do business in Arkansas. Allen says he was unaware of that.

"I think that's just a mistake," he says. "I have never been a director of a BFI company. It is strange. I just can't imagine. There's no way I could be on their board."

Allen adds he has never attended a board meeting or a shareholders meeting.

Barnett, speaking from his second home in Aspen, Colo., says he has resigned from all board positions he once held because of the increase in director's liability insurance.

And there's another connection. Metro and BFI at one time both bought their dumpsters from Dixie Manufacturing Co. of Little Rock. Barnett, who was a Dixie board member, is an old golfing buddy of John Davis, whose family started Dixie in 1919.

Now CEO at American Waste, Davis notes that he decided to cut back on manufacturing -- "we weren't making a profit," he explains -- to go into the waste disposal service industry. It seemed natural to ask Barnett, a friend since their school days together at the University of Arkansas, to come in as an investor. Allen says he was brought into the deal at a later point. It was in time, however, for Allen to list American Waste as an investment on his 1988 ethics disclosure form, which was filed in January with the Secretary of State.

For Barnett, the motivation to back Davis "wasn't the same as with another company."

"With Johnny, he's so well known and well liked, I just want to see him succeed," adds Barnett. "He's been pretty beat up [at American Waste] by the big companies."

In the face of competing with a virtual monopoly presented by the two international companies, American Waste is stressing its ties to the local community and its small size as strong suits.

"We have a lot of friends locally. If anyone can do it, we can," asserts Allen. "We knew the market, and we had the customers [under Metro contracts] before they did. John Davis' family has been here a hundred years...and a local company can always compete with a New York Stock Exchange Co. because it's got loyal customers."

The competition is fierce. Paul Sivils, who heads BFI in Arkansas, declined to say anything about his business on advice from the company's attorneys. And Davis refused to discuss details about American's start-up and marketing strategies.

Davis does say it's "the customer who will benefit" from the competition. But Ken Bernard, a VP with Waste Management of Arkansas, predicts that a price war between BFI and American could backfire.

"This is an extremely expensive business," says Bernard. "If you've got price cuts at first, you'll have to nail the customer sooner or later because you can't make any money."

Dumpsters cost an average of $500 to $600. Hauling trucks go for $140,000. Tires alone cost $400 each. Add in tipping fees at local landfills, which the commercial waste services use to dump truckloads, insurance premiums and regular employee salary and benefit factors and it's easy to see expense figures mount.

American also is dipping into its own pockets to attract some former BFI customers to make the switch. In the lawsuit, BFI alleges that American Waste intentionally persuaded BFI customers to breach their existing contracts. American, in its response to BFI's complaint, admits it had paid more than $43,000 to three companies -- General Properties Inc., Wendy's Restaurants; and Fabco Building Services (a subsidiary of Worthen Bank) -- in reimbursements for breaking contracts with BFI. American Waste also admits providing a $1,350 credit to the Plaza West office building to gain the business.

The contracts written by BFI run for three years. A customer that terminates its service prior to the contract expiration must pay a penalty based on its monthly billing for the past six months.

American provided reimbursements to customers that chose to go that route in order to transfer their accounts to the new company. The aggressive recruitment was possible with Allen and Barnett bankrolling the venture.

"We're not undercapitalized," Allen comments. "We're not doing that on a widespread basis, however. We're doing it selectively."

Davis won't say whether American will continue to curry favor with new clients with the promise of reimbursements, but he asserts, "We don't plan on waiting for the business to come to us. We'll hustle for it."

Barnett says American has stopped using the controversial carrot, even though the company's attorneys argue it is legal.

"The issue isn't `Can I solicit accounts.' It's `Can I solicit accounts and break a contract,'" explains Barnett. "No one with any sense goes into break service contracts. You can get sued. But if you pay the five-month penalty for breaking the contract, then you've met the obligation."

The lawsuit against American "isn't very important in the survival of the company. We're not at risk from that point of view," Barnett insists.

Allen says American is continuing to lose money. "That's to be expected. We didn't plan to make money for two years. Our original plan was it would take 24 months to show a profit, and we're a little ahead of that plan now, from what I've been told."

The war rages on. Although BFI won't comment for the record, Waste Management's Bernard does: "I'm not intimidated by any additional players in the market."

He adds Waste Management has made no changes in its marketing strategy. He says his sales staff make more thorough evaluations of customer needs because they don't have to hurry from sale to sale. That's because Waste Management's account executives don't work on a commission basis, unlike those at American and BFI, he notes.

Despite the impressive profit figures on the corporate ledgers at BFI and Waste Management, both of those companies rely on diversification in other products and services to round out waste-hauling revenues. Bernard says the commercial waste disposal business "can make you some money, but you won't get filthy rich."

Waste Management is the only major commercial waste service in Little Rock with its own landfill, a factor that Bernard says isn't saving the company any expense now, but could in the future when stricter government regulations cause costs to rise at non-compliant landfills that are used by Waste Management's competitors.

BFI and American Waste currently use private and municipal landfills in central Arkansas. American is trying to build its own.

The Pulaski County Quorum Court rejected American's application in April to allow the company to build a landfill on a 320-acre site near Dixon and 65th streets in Southwest Little Rock.

Quorum Court members said the sanitary landfill would contribute to flooding problems in the area, and could damage a potential archeological site. They also cited traffic problems as a cause for the rejection. Davis, who is sensitive on the subject, declines to elaborate on the company's specific plans for securing a landfill in the future. But the new kid on the block doesn't seem to be bothered by that or the lawsuit over its start-up tactics.
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Author:Briton, Jobeth
Publication:Arkansas Business
Date:Jul 31, 1989
Previous Article:License to crow.
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