Republic Services, Inc.
As filed with the Securities
and Exchange Commission on October 10, 2008
Registration
No. 333-152693
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 3
to
Form S-4
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF
1933
Republic Services,
Inc.
(Exact name of registrant as
specified in its charter)
|
|
|
|
|
Delaware
|
|
4953
|
|
65-0716904
|
(State or other jurisdiction
of
incorporation or organization)
|
|
(Primary Standard Industrial
Classification Code Number)
|
|
(I.R.S. Employer
Identification Number)
|
110 S.E.
6th
Street,
28th
Floor
Fort Lauderdale, Florida 33301
(954) 769-2400
(Address, including zip code,
and telephone number,
including area code, of
registrants principal executive offices)
David A. Barclay, Esq.
Senior Vice President, General Counsel
and Assistant Secretary
Republic Services, Inc.
110 S.E.
6th Street,
28th
Floor
Fort Lauderdale, Florida 33301
(954) 769-2400
(Name, address, including zip
code, and telephone number, including area code, of agent for
service)
Copies to:
|
|
|
|
|
Jonathan L. Awner, Esq.
Stephen K. Roddenberry, Esq.
Michael T. Francis, Esq.
Akerman Senterfitt
One Southeast Third Avenue,
25th
Floor
Miami, Florida 33131
(305) 374-5600
|
|
Timothy R. Donovan, Esq.
Allied Waste Industries, Inc.
Executive Vice President,
General Counsel and Corporate Secretary
18500 North Allied Way
Phoenix, Arizona 85054
(480) 627-2700
|
|
Jodi A. Simala, Esq.
David A. Schuette, Esq.
Mayer Brown LLP
71 S. Wacker Drive
Chicago, Illinois 60606
(312) 782-0600
|
Approximate date of commencement of proposed sale to the
public: As soon as practicable after the
effective time of this registration statement and the effective
time of the merger of RS Merger Wedge, Inc., a Delaware
corporation and a wholly owned subsidiary of Republic Services,
Inc., with and into Allied Waste Industries, Inc., a Delaware
corporation, as described in the Agreement and Plan of Merger,
dated as of June 22, 2008, as amended, attached as
Annex A to the joint proxy statement/prospectus forming
part of this registration statement.
If the securities being registered on this Form are being
offered in connection with the formation of a holding company
and there is compliance with General Instruction G, check
the following
box. o
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same
offering. o
If this form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer
or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer, and smaller reporting company in
Rule 12b-2
of the Exchange Act.
|
|
|
|
|
|
|
Large accelerated filer þ
|
|
Accelerated filer o
|
|
Non-accelerated filer o
(Do not check if a smaller reporting company)
|
|
Smaller reporting company o
|
The Registrant hereby amends this registration statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this registration statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the registration
statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
The information in this preliminary joint proxy
statement/prospectus is not complete and may be changed. These
securities may not be sold until the registration statement
filed with the Securities and Exchange Commission is effective.
This preliminary joint proxy statement/prospectus is not an
offer to sell and it is not soliciting an offer to buy these
securities in any jurisdiction where the offer or sale is not
permitted.
|
SUBJECT TO COMPLETION, DATED
OCTOBER 10, 2008
MERGER
PROPOSED YOUR VOTE IS VERY IMPORTANT
The boards of directors of Republic Services, Inc. and Allied
Waste Industries, Inc. have each approved a merger agreement
which provides for the combination of the two companies. The
boards of directors of Republic and Allied believe that the
combination of the two companies will be able to create
substantially more long-term stockholder value than either
company could individually achieve. Following the completion of
the merger, Allied will be a wholly owned subsidiary of Republic
with Allied stockholders receiving approximately 51.7% of the
outstanding common stock of the combined company in respect of
their Allied shares and Republic stockholders retaining
approximately 48.3% of the outstanding common stock of the
combined company, in each case, on a diluted basis. In this
joint proxy statement/prospectus, Republic Services, Inc. is
referred to as Republic and Allied Waste Industries,
Inc. is referred to as Allied.
The combined company will be named Republic Services, Inc. and
the shares of the combined company will be traded on the New
York Stock Exchange, or the NYSE, under the symbol
RSG.
If the merger is completed, Allied stockholders will be entitled
to receive .45 shares of Republic common stock, par value
$.01 per share, for each share of Allied common stock that they
owned immediately before the effective time of the merger.
Allied stockholders will be entitled to receive cash for any
fractional shares that they would otherwise have received
pursuant to the merger. Republic stockholders will continue to
own their existing shares after the merger. Republic common
stock is traded on the NYSE under the symbol RSG. On
October 9, 2008, the closing price per share of Republic
common stock as reported by the NYSE was $22.98. You are urged
to obtain current market quotations for the shares of Republic
and Allied.
Republic and Allied estimate that Republic will issue
approximately 196.2 million shares of Republic common stock
pursuant to the merger based on the number of shares of Allied
common stock outstanding on June 30, 2008, and will reserve
an additional 14.1 million shares of Republic common stock
for issuance in connection with the exercise or conversion of
Allieds outstanding options, other equity-based awards and
convertible debentures.
YOUR VOTE IS IMPORTANT. The merger cannot be completed
unless holders of Republic common stock vote to approve the
issuance of Republic common stock and other securities
convertible into or exercisable for shares of Republic common
stock, which we refer to as the Republic share issuance, in
connection with the merger, and holders of Allied common stock
vote to adopt the merger agreement, as amended on July 31,
2008, which is referred to as the merger agreement.
The Republic board of directors unanimously recommends that
Republic stockholders vote FOR the Republic share
issuance in connection with the merger. The Allied board of
directors unanimously recommends that Allied stockholders vote
FOR the adoption of the merger agreement.
Republic and Allied will each hold a special meeting of their
respective stockholders to vote on these proposals. Whether or
not you plan to attend your companys special meeting,
please take the time to cause your shares to be voted by
completing and mailing the enclosed proxy card or submitting
your proxy by telephone or through the Internet, using the
procedures in the proxy voting instructions included with your
proxy card. Even if you return the proxy, you may attend the
special meeting and vote your shares in person at the meeting.
This document describes the proposed merger and related
transactions in more detail. Republic and Allied encourage
you to read this entire document carefully, including the merger
agreement, as amended, which is included as Annex A, and
the section discussing Risk Factors relating to the
merger and the combined company beginning on page 29.
Republic and Allied look forward to the successful combination
of the two companies.
|
|
|
|
|
|
|
|
|
|
|
|
James E. OConnor
|
|
John J. Zillmer
|
Chairman of the Board of Directors and Chief Executive Officer,
|
|
Chairman of the Board of Directors and Chief Executive Officer,
|
Republic Services, Inc.
|
|
Allied Waste Industries, Inc.
|
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of the merger
described in this joint proxy statement/prospectus or the
Republic common stock to be issued pursuant to the merger, or
determined if this joint proxy statement/prospectus is accurate
or adequate. Any representation to the contrary is a criminal
offense.
This joint proxy statement/prospectus is dated
October 10, 2008 and, together with the accompanying proxy
card, is first being mailed or otherwise delivered to
stockholders of Republic and Allied on or about October 14,
2008.
THIS
JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES ADDITIONAL
INFORMATION
This document incorporates by reference important business and
financial information about Republic and Allied from other
documents filed with the Securities and Exchange Commission,
which is referred to as the SEC, that are not included in or
delivered with this joint proxy statement/prospectus. This
information is available to you without charge upon your written
or oral request. For a list of the documents incorporated by
reference into this joint proxy statement/prospectus, see
Where You Can Find More Information beginning on
page 158. You can obtain electronic or hardcopy versions of
the documents that are incorporated by reference into this joint
proxy statement/prospectus, without charge, from the Investor
Relations section of the appropriate companys website or
by requesting them in writing or by telephone, in each case as
set forth below:
|
|
|
|
|
|
|
if you are a Republic stockholder:
|
|
if you are an Allied stockholder:
|
Electronic:
|
|
www.republicservices.com
|
|
Electronic:
|
|
www.alliedwaste.com
|
|
|
(please see Contact Us
page in the Investor Relations portion of the site)
|
|
|
|
(please see Information Request page in the Investor
Relations portion of the site)
|
By Mail:
|
|
Republic Services, Inc.
|
|
By Mail:
|
|
Allied Waste Industries, Inc.
|
|
|
110 S.E.
6th
Street, 28th Floor
|
|
|
|
18500 North Allied Way
|
|
|
Fort Lauderdale, FL 33301
|
|
|
|
Phoenix, AZ 85054
|
|
|
Attention: Investor Relations
|
|
|
|
Attention: Investor Relations
|
E-mail Address:
|
|
investorrelations@repsrv.com
|
|
E-mail Address:
|
|
investor.relations@awin.com
|
By Telephone:
|
|
(954) 769-2400
|
|
By Telephone:
|
|
(480) 627-2700
|
IF YOU WOULD LIKE TO REQUEST DOCUMENTS, PLEASE DO SO BY
NOVEMBER 6, 2008 IN ORDER TO RECEIVE THEM BEFORE YOUR
COMPANYS SPECIAL MEETING.
SUBMITTING
A PROXY ELECTRONICALLY, BY TELEPHONE OR BY MAIL
Republic stockholders of record on October 6, 2008 may
submit their proxies as follows:
|
|
|
|
|
Through the Internet, by visiting the website established for
that purpose at www.proxyvote.com and following the instructions;
|
|
|
|
|
|
By telephone, by calling the toll-free number
(800) 690-6903 in the United States, Canada or Puerto Rico
on a touch-tone phone and following the recorded
instructions; or
|
|
|
|
|
|
By mail, by marking, signing, and dating the enclosed proxy card
and returning it in the postage-paid envelope provided or
returning it pursuant to the instructions set out in the proxy
card.
|
Allied stockholders of record on October 6, 2008 may
submit their proxies as follows:
|
|
|
|
|
Through the Internet, by visiting the website established for
that purpose at http://proxy.georgeson.com and following the
instructions;
|
|
|
|
|
|
By telephone, by calling the toll-free number
(877) 412-6959 in the United States, Canada or Puerto Rico
on a touch-tone phone and following the recorded
instructions; or
|
|
|
|
|
|
By mail, by marking, signing, and dating the enclosed proxy card
and returning it in the postage-paid envelope provided or
returning it pursuant to the instructions provided in the proxy
card.
|
If you
are a beneficial owner, please refer to your proxy card or the
information forwarded by your bank, broker or other holder of
record to see which options are available to you.
NOTICE OF
SPECIAL MEETING OF STOCKHOLDERS
To Be Held On November 14, 2008
Dear Republic Stockholder:
Republic Services, Inc. is pleased to invite you to attend a
special meeting of the stockholders of Republic, which will be
held on November 14, 2008 at 1:30 p.m., Eastern time,
in the Atrium on the 7th Floor of the AutoNation Building, 110
S.E. 6th Street, Fort Lauderdale, Florida 33301.
The purpose of the Republic special meeting is to consider and
to vote upon the following proposals:
|
|
|
|
|
a proposal to approve the issuance of shares of Republic common
stock and other securities convertible into or exercisable for
shares of Republic common stock, which we refer to as the
Republic share issuance, in connection with the transactions
contemplated by the Agreement and Plan of Merger, dated as of
June 22, 2008, as amended July 31, 2008, among
Republic, RS Merger Wedge, Inc., a wholly owned subsidiary of
Republic formed for the purpose of the merger, and Allied Waste
Industries, Inc.; and
|
|
|
|
a proposal to approve an adjournment of the Republic special
meeting, if necessary, to solicit additional proxies in favor of
the foregoing proposal.
|
The Republic board of directors has unanimously determined that
the Republic share issuance in connection with the merger is
advisable and in the best interests of Republic and its
stockholders and recommends that Republic stockholders vote
FOR the Republic share issuance in connection with
the merger and FOR the adjournment of the Republic
special meeting, if necessary, to solicit additional proxies in
favor of the foregoing proposal.
Republic and Allied cannot complete the merger unless the
Republic share issuance in connection with the merger is
approved:
(1) under the rules of the New York Stock Exchange, which
requires the affirmative vote of holders of shares of Republic
common stock representing a majority of votes cast on the
proposal, provided that the total number of votes cast on the
proposal represents a majority of the total number of shares of
Republic common stock issued and outstanding on the record date
for the Republic special meeting; and
(2) under the Republic bylaws, which requires the
affirmative vote of holders of shares of Republic common stock
representing a majority of the total number of shares of
Republic common stock present, in person or by proxy at the
special meeting, and entitled to vote on the proposal.
Your vote is very important. Your failure to vote will make
it more difficult to approve the Republic share issuance.
The close of business on October 6, 2008 has been fixed as
the record date, which is referred to as the Republic record
date. Only holders of record of Republic common stock on the
Republic record date are entitled to notice of, and to vote at,
the Republic special meeting or any adjournments or
postponements of the Republic special meeting. A list of the
holders of Republic common stock entitled to vote at the
Republic special meeting will be available for examination by
any Republic stockholder, for any purpose germane to the
Republic special meeting, at Republics principal executive
offices at 110 S.E. 6th Street, 28th Floor,
Fort Lauderdale, Florida 33301, for ten days before the
Republic special meeting, during normal business hours, and at
the time and place of the Republic special meeting as required
by law.
Republic directs your attention to the joint proxy
statement/prospectus accompanying this notice for a more
complete statement regarding the matters proposed to be acted
upon at the Republic special meeting. You are encouraged to read
the entire joint proxy statement/prospectus carefully, including
the merger agreement, as amended, which is included as
Annex A to the joint proxy statement/prospectus, and the
section discussing Risk Factors beginning on
page 29.
SO THAT YOUR SHARES WILL BE REPRESENTED WHETHER OR NOT YOU
ATTEND THE REPUBLIC SPECIAL MEETING, PLEASE SUBMIT A PROXY AS
SOON AS POSSIBLE BY MAIL, BY TELEPHONE OR THROUGH THE INTERNET.
INSTRUCTIONS ON THESE DIFFERENT WAYS TO SUBMIT YOUR PROXY
ARE FOUND ON THE ENCLOSED PROXY FORM. YOU MAY REVOKE YOUR PROXY
AT ANY TIME BEFORE IT IS VOTED AT THE REPUBLIC SPECIAL MEETING.
REMEMBER, YOUR VOTE IS IMPORTANT, SO PLEASE ACT TODAY!
By Order of the Board of Directors,
James E. OConnor
Chairman of the Board of Directors
and Chief
Executive Officer
October 10, 2008
NOTICE OF
SPECIAL MEETING OF STOCKHOLDERS
To Be
Held On November 14, 2008
Dear Allied Stockholder:
Allied Waste Industries, Inc. is pleased to invite you to attend
a special meeting of the stockholders of Allied which will be
held on November 14, 2008 at 11:30 a.m., Mountain
time, at the Marriott at McDowell Mountains, 16770 North
Perimeter Drive, Scottsdale, Arizona 85260.
The purpose of the Allied special meeting is to consider and to
vote upon the following proposals:
|
|
|
|
|
a proposal to adopt the Agreement and Plan of Merger, dated as
of June 22, 2008, as amended July 31, 2008, among
Republic Services, Inc., RS Merger Wedge, Inc., a wholly owned
subsidiary of Republic formed for the purpose of the merger, and
Allied Waste Industries, Inc., a copy of which is attached as
Annex A to the joint proxy statement/prospectus, pursuant
to which Allied will become a wholly owned subsidiary of
Republic; and
|
|
|
|
a proposal to approve an adjournment of the Allied special
meeting, if necessary, to solicit additional proxies in favor of
the foregoing proposal.
|
The Allied board of directors has unanimously determined that
the merger agreement and the transactions contemplated by it,
including the merger, are advisable and in the best interests of
Allied and its stockholders and recommends that Allied
stockholders vote FOR the adoption of the merger
agreement and FOR the adjournment of the Allied
special meeting, if necessary, to solicit additional proxies in
favor of the foregoing proposal.
Republic and Allied cannot complete the merger unless the
proposal to adopt the merger agreement is approved by holders of
a majority of the total number of shares of Allied common stock
issued and outstanding on the record date for the Allied special
meeting.
Your vote is very important. Your failure to vote will have
the same effect as a vote against the adoption of the merger
agreement.
The close of business on October 6, 2008 has been fixed as
the record date, which is referred to as the Allied record date.
Only holders of record of Allied common stock on the Allied
record date are entitled to notice of, and to vote at, the
Allied special meeting or any adjournments or postponements of
the Allied special meeting. A list of holders of Allied common
stock entitled to vote at the Allied special meeting will be
available for examination by any Allied stockholder for any
purpose germane to the Allied special meeting, at Allieds
principal executive offices at 18500 North Allied Way, Phoenix,
Arizona 85054, for ten days before the Allied special meeting,
during normal business hours, and at the time and place of the
Allied special meeting as required by law.
Allied directs your attention to the joint proxy
statement/prospectus accompanying this notice for more detailed
information regarding the matters proposed to be acted upon at
the Allied special meeting. You are encouraged to read the
entire joint proxy statement/prospectus carefully, including the
merger agreement, as amended, which is included as Annex A
to the joint proxy statement/prospectus, and the section
discussing Risk Factors beginning on page 29.
SO THAT YOUR SHARES WILL BE REPRESENTED WHETHER OR NOT YOU
ATTEND THE ALLIED SPECIAL MEETING, PLEASE SUBMIT A PROXY AS SOON
AS POSSIBLE BY MAIL, BY TELEPHONE OR THROUGH THE INTERNET.
INSTRUCTIONS ON THESE DIFFERENT WAYS TO SUBMIT YOUR PROXY
ARE FOUND ON THE ENCLOSED PROXY FORM. YOU MAY REVOKE YOUR PROXY
AT ANY TIME BEFORE IT IS VOTED AT THE ALLIED SPECIAL MEETING.
REMEMBER, YOUR VOTE IS IMPORTANT, SO PLEASE ACT TODAY!
By Order of the Board of Directors,
John J. Zillmer
Chairman of the Board of Directors
and Chief
Executive Officer
October 10, 2008
TABLE OF
CONTENTS
|
|
|
|
|
|
|
|
1
|
|
|
|
|
1
|
|
|
|
|
1
|
|
|
|
|
16
|
|
|
|
|
18
|
|
|
|
|
20
|
|
|
|
|
21
|
|
|
|
|
22
|
|
|
|
|
24
|
|
|
|
|
29
|
|
|
|
|
29
|
|
|
|
|
33
|
|
|
|
|
45
|
|
|
|
|
46
|
|
|
|
|
46
|
|
|
|
|
46
|
|
|
|
|
46
|
|
|
|
|
46
|
|
|
|
|
58
|
|
|
|
|
59
|
|
|
|
|
61
|
|
|
|
|
61
|
|
|
|
|
64
|
|
|
|
|
70
|
|
|
|
|
73
|
|
|
|
|
75
|
|
|
|
|
75
|
|
|
|
|
78
|
|
|
|
|
85
|
|
|
|
|
90
|
|
|
|
|
91
|
|
|
|
|
92
|
|
|
|
|
92
|
|
|
|
|
93
|
|
|
|
|
93
|
|
|
|
|
93
|
|
|
|
|
94
|
|
|
|
|
95
|
|
|
|
|
95
|
|
|
|
|
95
|
|
|
|
|
96
|
|
|
|
|
96
|
|
|
|
|
97
|
|
|
|
|
98
|
|
|
|
|
|
|
|
|
|
105
|
|
|
|
|
105
|
|
|
|
|
105
|
|
|
|
|
106
|
|
|
|
|
106
|
|
|
|
|
106
|
|
|
|
|
106
|
|
|
|
|
107
|
|
|
|
|
107
|
|
|
|
|
108
|
|
|
|
|
108
|
|
|
|
|
109
|
|
|
|
|
112
|
|
|
|
|
113
|
|
|
|
|
114
|
|
|
|
|
116
|
|
|
|
|
117
|
|
|
|
|
117
|
|
|
|
|
118
|
|
|
|
|
119
|
|
|
|
|
119
|
|
|
|
|
120
|
|
|
|
|
121
|
|
|
|
|
121
|
|
|
|
|
122
|
|
|
|
|
122
|
|
|
|
|
122
|
|
|
|
|
123
|
|
|
|
|
123
|
|
|
|
|
123
|
|
|
|
|
123
|
|
|
|
|
123
|
|
|
|
|
123
|
|
|
|
|
124
|
|
|
|
|
124
|
|
|
|
|
124
|
|
|
|
|
125
|
|
|
|
|
125
|
|
|
|
|
126
|
|
|
|
|
126
|
|
|
|
|
127
|
|
|
|
|
127
|
|
|
|
|
127
|
|
|
|
|
127
|
|
|
|
|
127
|
|
ii
SUMMARY
This summary highlights information contained elsewhere in
this joint proxy statement/prospectus. It does not contain all
of the information that may be important to you. You are urged
to read carefully this entire document, including the attached
annexes, and the other documents to which this joint proxy
statement/prospectus refers you in order for you to understand
fully the proposed merger. See Where You Can Find More
Information beginning on page 158. Each item in this
summary refers to the page of this joint proxy
statement/prospectus on which that subject is discussed in more
detail.
The
Companies
Republic
Services, Inc. (see page 105)
110 S.E.
6th
Street,
28th Floor
Fort Lauderdale, Florida 33301
(954)
769-2400
www.republicservices.com (The information contained on
Republics website is not deemed part of this joint proxy
statement/prospectus.)
Republic is a leading provider of services in the domestic
non-hazardous solid waste industry with reported revenues of
approximately $3.2 billion and $3.1 billion for the
years ended December 31, 2007 and 2006, respectively.
Republic provides non-hazardous solid waste collection services
for commercial, industrial, municipal and residential customers
through 136 collection companies in 21 states. Republic
also owns or operates 93 transfer stations, 58 solid waste
landfills and 33 recycling facilities.
Allied
Waste Industries, Inc. (see page 105)
18500 North Allied Way
Phoenix, Arizona 85054
(480) 627-2700
www.alliedwaste.com (The information contained on Allieds
website is not deemed part of this joint proxy
statement/prospectus.)
Allied is the countrys second largest non-hazardous, solid
waste management company with reported revenues of approximately
$6.1 billion and $5.9 billion for the years ended
December 31, 2007 and 2006, respectively. Allied provides
collection, transfer, recycling and disposal services for more
than 8 million residential, commercial and industrial
customers. Allied serves its customers through a network of 291
collection companies, 161 transfer stations, 160 active
landfills and 53 recycling facilities in 123 markets within
37 states and Puerto Rico.
The
Merger
The Agreement and Plan of Merger, dated as of June 22,
2008, as amended on July 31, 2008, among Republic Services,
Inc., RS Merger Wedge, Inc. and Allied Waste Industries, Inc.,
which is referred to as the merger agreement, is included as
Annex A to this joint proxy statement/prospectus. Allied
and Republic encourage you to carefully read the merger
agreement in its entirety because it is the principal legal
agreement that governs the merger.
Structure
of the Merger (see page 106)
Subject to the terms and conditions of the merger agreement and
in accordance with Delaware law, RS Merger Wedge, Inc., a wholly
owned subsidiary of Republic that was formed for the purpose of
the merger, will be merged with and into Allied, with Allied
surviving the merger and becoming a wholly owned subsidiary of
Republic. Immediately following the merger, Republic will
continue to be named Republic
Services, Inc. and will be the parent company of Allied.
Accordingly, after the effective time of the merger, shares of
Allied common stock will no longer be publicly traded.
Merger
Consideration (see page 106)
Allied Stockholders. As a result of the
merger, at the effective time, Allied stockholders will be
entitled to receive .45 shares of Republic common stock for
each share of Allied common stock that they own. The number of
shares of Republic common stock delivered in respect of each
share of Allied common stock pursuant to the merger is referred
to as the exchange ratio. This exchange ratio is fixed and will
not be adjusted to reflect stock price changes prior to the
effective time of the merger. Republic will not issue any
fractional shares of Republic common stock pursuant to the
merger. Instead, Allied stockholders will be entitled to receive
cash for any fractional shares of Republic common stock that
they otherwise would have received pursuant to the merger (after
aggregating all shares held). The amount of cash for each
fractional share will be calculated by multiplying the fraction
of a share of Republic common stock to which the Allied
stockholder would have been entitled to receive in the merger by
the closing sale price of a share of Republic common stock on
the first trading day immediately following the effective time
of the merger. The Republic common stock received based on the
exchange ratio, together with any cash received in lieu of
fractional shares, is referred to as the merger consideration.
For more information about fractional share treatment, please
see The Merger Agreement Merger
Consideration Fractional Shares beginning on
page 106.
Republic Stockholders. Republic stockholders
will continue to own their existing shares of Republic common
stock after the merger. Each share of Republic common stock will
represent one share of common stock in the combined company.
Ownership
of the Combined Company After the Merger (see
page 46)
As of June 30, 2008, Republic has approximately
181.9 million outstanding shares of Republic common stock
and has reserved approximately 10.5 million shares of
Republic common stock in connection with the exercise of
outstanding Republic options and other equity-based awards.
Pursuant to the merger, at the effective time of the merger,
Republic (1) will issue approximately 196.2 million
shares of Republic common stock and (2) will reserve for
issuance approximately 14.1 million shares of Republic
common stock in connection with the exercise or settlement of
Allied equity-based awards and conversion of the Allied
convertible debentures. Republic and Allied expect that the
shares of Republic common stock issued in connection with the
merger in respect of outstanding Allied common stock will
represent approximately 51.7% of the outstanding common stock of
the combined company immediately after the merger on a diluted
basis. Shares of Republic common stock held by Republic
stockholders immediately prior to the merger will represent
approximately 48.3% of the outstanding common stock of the
combined company immediately after the merger on a diluted basis.
Comparative
Per Share Market Price and Dividend Information (see
page 22)
Republic common stock is listed on the NYSE under the symbol
RSG. Allied common stock is listed on the NYSE under
the symbol AW. The following table sets forth the
closing sale prices of Republic common stock as reported on the
NYSE and the closing sale prices of Allied common stock as
reported on the NYSE, each on June 12, 2008, the last
trading day before the day on which Republic and Allied
confirmed that they were involved in discussions regarding a
possible business combination, on June 20, 2008, the last
trading day before the day on which Republic and Allied
announced the execution of the merger agreement, and on
October 3, 2008, the last trading day before the Republic
and Allied record date. This table also
2
shows the implied value of an Allied common share, which was
calculated by multiplying the closing price of Republic common
stock on those dates by the exchange ratio of .45.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Republic
|
|
|
Allied
|
|
|
Implied
|
|
|
|
Common
|
|
|
Common
|
|
|
Value of Allied
|
|
|
|
Stock
|
|
|
Stock
|
|
|
Common Stock
|
|
|
June 12, 2008
|
|
$
|
33.66
|
|
|
$
|
13.92
|
|
|
$
|
15.15
|
|
June 20, 2008
|
|
|
31.19
|
|
|
|
13.56
|
|
|
|
14.04
|
|
October 3, 2008
|
|
|
28.35
|
|
|
|
11.08
|
|
|
|
12.76
|
|
The market prices of Republic common stock and Allied common
stock will fluctuate before the special meetings and before the
merger is completed. Therefore, you should obtain current market
quotations for Republic common stock and Allied common stock.
Comparison
of Stockholder Rights
Republic and Allied are both Delaware corporations. The Republic
Amended and Restated Certificate of Incorporation and amended
and restated bylaws contain provisions that are different from
the Allied Amended and Restated Certificate of Incorporation and
amended and restated bylaws. In connection with the merger,
Republic will amend and restate its bylaws to provide for
certain corporate governance and other matters. For a discussion
of certain differences among the rights of stockholders, see
Comparison of Stockholder Rights beginning on
page 135.
Recommendations
to Stockholders
Recommendations to Republic Stockholders. The
Republic board of directors has unanimously determined that the
Republic share issuance in connection with the merger is
advisable and in the best interests of Republic and its
stockholders. The Republic board of directors recommends that
Republic stockholders vote:
|
|
|
|
|
FOR the Republic share issuance in connection
with the merger; and
|
|
|
|
FOR the adjournment of the special meeting,
if necessary, to solicit additional proxies in favor of the
foregoing proposal.
|
For additional information see The Republic Special
Meeting Board Recommendations beginning on
page 123.
Recommendations to Allied Stockholders. The
Allied board of directors has unanimously determined that the
merger agreement and the merger contemplated by the merger
agreement are advisable and in the best interests of Allied and
its stockholders. The Allied board of directors recommends that
Allied stockholders vote:
|
|
|
|
|
FOR the adoption of the merger
agreement; and
|
|
|
|
FOR the adjournment of the special meeting,
if necessary, to solicit additional proxies in favor of the
foregoing proposal.
|
For additional information see The Allied Special
Meeting Board Recommendations beginning on
page 127.
In making their respective recommendations, each of the Republic
board of directors and the Allied board of directors considered,
among other matters, the strategic benefits of combining the two
companies, the strong financial foundation of the combined
company, the synergies and cost savings expected to be achieved
by the merger, the strengthened management team of the combined
company and the net growth opportunities available to the
combined company. For additional information see The
Merger Rationale for the Merger beginning on
page 58. In addition, in making its respective recommendation,
each board considered those further matters set forth under the
headings The Merger Republic Reasons for the
Merger and The Merger Allied Reasons for
the Merger beginning on pages 59 and 73, respectively.
3
Opinions
of Financial Advisors (see pages 64 and 78)
Republic. In connection with the merger, the
Republic board of directors received an oral opinion,
subsequently confirmed by delivery of a written opinion dated
June 22, 2008, from Merrill Lynch, Pierce,
Fenner & Smith Incorporated, which is referred to as
Merrill Lynch, as to the fairness, from a financial point of
view and as of the date of such opinion, to Republic of the
exchange ratio provided for in the merger agreement. The full
text of the written opinion of Merrill Lynch is attached to this
joint proxy statement/prospectus as Annex C. Republic
stockholders are encouraged to read this opinion carefully in
its entirety for a description of the assumptions made, matters
considered and qualifications and limitations on the review
undertaken. Merrill Lynchs opinion as to the fairness,
from a financial point of view, of the exchange ratio to
Republic was provided to the Republic board of directors in
connection with its evaluation of the exchange ratio from a
financial point of view, does not address any other aspect of
the merger and does not constitute a recommendation to any
stockholder as to how that stockholder should vote on the
proposed merger or any related matter.
Allied. In connection with the merger, the
Allied board of directors received a written opinion, dated
June 22, 2008, from Allieds financial advisor, UBS
Securities LLC, which is referred to as UBS, as to the fairness,
from a financial point of view and as of the date of such
opinion, of the exchange ratio provided for in the merger to the
holders of Allied common stock. The full text of UBS
written opinion, dated June 22, 2008, is attached to this
joint proxy statement/prospectus as Annex D. UBS
opinion was provided for the benefit of the Allied board of
directors in connection with, and for the purpose of, its
evaluation of the exchange ratio from a financial point of view
and does not address any other aspect of the merger. The opinion
does not address the relative merits of the merger as compared
to other business strategies or transactions that might be
available with respect to Allied or Allieds underlying
business decision to effect the merger. The opinion does not
constitute a recommendation to any stockholder as to how to vote
or act with respect to the merger. Holders of Allied common
stock are encouraged to read UBS opinion carefully in its
entirety for a description of the assumptions made, procedures
followed, matters considered and limitations on the review
undertaken by UBS.
Allied
Options, Other Equity-Based Awards and Convertible Debentures
(see page 107)
At the effective time of the merger, each outstanding option
issued by Allied to purchase shares of Allied common stock,
which is referred to as an Allied option, will be converted into
an option to purchase shares of Republic common stock on the
same terms and conditions as were applicable before the merger
(but taking into account any acceleration of Allied options in
connection with the merger) except that the holder thereof will
be allowed to purchase shares of Republic common stock equal to
(1) the number of shares of Allied common stock subject to
the Allied option before the completion of the merger multiplied
by (2) .45, which is the exchange ratio, (3) with the
result rounded to the nearest whole share. In addition, at the
effective time of the merger, each option that has been
converted into an option to purchase shares of Republic common
stock will have an exercise price per share equal to
(1) the exercise price per share of Allied common stock
purchasable pursuant to the Allied option before the completion
of the merger divided by (2) .45, which is the exchange
ratio, (3) with the result rounded to the nearest whole
cent.
At the effective time of the merger, each outstanding Allied
restricted share, restricted stock unit and deferred stock unit,
which are referred to as other Allied equity-based awards, will
be converted into a restricted share, restricted stock unit or
deferred stock unit of Republic, respectively, on the same terms
and conditions (but taking into account any acceleration of
Allied equity-based awards in connection with the merger) as
were applicable before the merger except that the number of
shares of Republic common stock subject to the converted other
Allied equity-based award will equal (1) the number of
shares of Allied common stock subject to the equity-based award
before the completion of the merger multiplied by (2) .45,
which is the exchange ratio, (3) with the result rounded to
the nearest whole share. For more information regarding Allied
equity-based awards, please see The Merger
Agreement Allied Options, Other Equity-Based Awards
and Convertible Debentures beginning on page 107.
In April 2004, Allied issued $230 million of
4.25% senior subordinated convertible debentures due 2034.
The debentures are convertible into 11.3 million shares of
Allied common stock at a conversion price of
4
$20.43 per share. Each convertible debenture outstanding
immediately prior to the effective time will, following the
merger, remain outstanding and cease to be convertible into
Allied common stock and the holder of such convertible debenture
will become entitled to receive, upon conversion thereof,
Republic common stock that such holder would have received in
the merger if such holder had converted the holders
debenture to Allied common stock immediately prior to the merger.
Interests
of Republic and Allied Executive Officers and Directors in the
Merger (see pages 70, 85 and 92)
When you consider the Republic and Allied board of
directors respective recommendations that stockholders
vote in favor of the proposals described in this joint proxy
statement/prospectus, you should be aware that (1) some
Republic executive officers and directors may have interests
that may be different from, or in addition to, Republic
stockholders interests, including their receipt of
severance benefits under existing Republic employment
arrangements, accelerated vesting of Republic equity-based
awards and participation in various benefits plans, and
(2) some Allied executive officers and directors may have
interests that may be different from, or in addition to, Allied
stockholders interests, including their receipt of
severance benefits under existing Allied employment
arrangements, accelerated vesting of Allied equity-based awards
and participation in various benefits plans.
No
Appraisal Rights (see page 93)
Under Delaware law, Republic and Allied stockholders have no
right to an appraisal of the fair value of their shares in
connection with the merger.
Material
Federal Income Tax Consequences of the Merger (see
page 93)
An Allied stockholders receipt of Republic common stock
pursuant to the merger will generally be tax-free for
U.S. federal income tax purposes, except for taxes that may
result from any receipt of cash in lieu of a fractional share of
Republic common stock. There will be no U.S. federal income
tax consequences to a holder of Republic common stock as a
result of the merger.
The U.S. federal income tax consequences described
above may not apply to some holders of Allied common stock,
including some types of holders specifically referred to on
page 93. Accordingly, please consult your tax advisor for a
full understanding of the particular tax consequences of the
merger to you.
Accounting
Treatment (see page 91)
Republic will account for the merger as a purchase of Allied by
Republic, using the acquisition method of accounting in
accordance with United States generally accepted accounting
principles, or GAAP. Republic and Allied expect
that, upon completion of the merger, Allied stockholders will
receive approximately 51.7% of the outstanding common stock of
the combined company in respect of their Allied shares on a
diluted basis and Republic stockholders will retain 48.3% of the
outstanding common stock of the combined company on a diluted
basis. In addition to considering these relative voting rights,
Republic also considered the proposed composition of the
combined companys board of directors and the board
committees, the proposed structure and members of the executive
management team of the combined company and the premium to be
paid by Republic to acquire Allied in determining the acquirer
for accounting purposes. Based on the weighting of these
factors, Republic has concluded that it is the accounting
acquirer.
Under the acquisition method of accounting, as of the effective
time of the merger, the assets, including identifiable
intangible assets, and liabilities of Allied will be recorded at
their respective fair values and added to those of Republic. Any
excess of the purchase price for the merger over the net fair
value of Allieds assets and liabilities will be recorded
as goodwill. The results of operations of Allied will be
combined with the results of operations of Republic beginning on
the effective time of the merger. The consolidated financial
statements of Republic after the effective time of the merger
will not be restated retroactively to reflect the historical
financial position or results of operations of Allied. Following
the merger, and subject to the finalization of the purchase
price allocation, the earnings of Republic will reflect the
effect of any purchase
5
accounting adjustments, including any increased depreciation and
amortization associated with fair value adjustments to the
assets acquired and liabilities assumed.
The preliminary purchase price allocation assumes the merger is
consummated in 2008, and that it will be accounted for under
Statement of Financial Accounting Standards No. 141,
Business Combinations. Republics and
Allieds management believe the merger will be consummated
in the fourth quarter of 2008. If the merger is consummated
subsequent to December 31, 2008, it will be accounted for
under Statement of Financial Accounting Standards No. 141
(revised 2007), Business Combinations (SFAS
141(R)), which is effective for Republic on
January 1, 2009. SFAS 141(R) changes the methodologies
for calculating purchase price and for determining fair values.
It also requires that all transaction and restructuring costs
related to business combinations be expensed as incurred, and it
requires that changes in deferred tax asset valuation allowances
and liabilities for tax uncertainties subsequent to the
acquisition date that do not meet certain remeasurement criteria
be recorded in the income statement. The consolidated balance
sheet and results of operations of the combined company would be
materially different if the merger of Republic and Allied were
accounted for under SFAS 141(R).
Regulatory
Matters (see page 96)
The merger is subject to review by federal and state antitrust
authorities pursuant to applicable federal and state antitrust
laws. Under the provisions of the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (HSR
Act), and the rules and regulations thereunder, the merger
cannot be completed until the companies have made the required
notifications and the occurrence of the first of the following:
(1) the early termination of the waiting period;
(2) the expiration of the required waiting period; or
(3) the resolution of any applicable federal or state
litigation. Republic and Allied filed the required notification
and report forms with the United States Department of Justice,
Antitrust Division and the Federal Trade Commission on
June 23, 2008.
Financing
(see page 97)
In connection with the merger, Republic intends to refinance
Allieds existing senior secured credit facility, which
includes a revolving credit facility, a term loan facility, an
institutional letter of credit facility and an incremental
revolving letter of credit facility. Republic intends to
accomplish the refinancing through a combination of funding
under a new $1.75 billion senior revolving credit facility,
which is referred to as the new credit facility, and
Republics existing $1.0 billion senior revolving
credit facility, which is referred to as the existing credit
facility. The new credit facility and the existing credit
facility are referred to together as the credit facilities.
Allieds other debt will remain outstanding immediately
following the merger.
Republic entered into the new credit facility evidenced by a
Credit Agreement dated as of September 18, 2008 among
Republic, Bank of America, N.A., as Administrative Agent, Swing
Line Lender and L/C Issuer, JPMorgan Chase Bank, N.A., as
Syndication Agent, Barclays Bank, PLC, BNP Paribas, and The
Royal Bank of Scotland PLC, as Co-Documentation Agents and the
other lenders party thereto, and intends to close the initial
funding under the new credit facility concurrent with the
merger. A condition to the initial funding under the new credit
facility will be the closing of the merger on or prior to
May 15, 2009. Additional conditions to the initial funding
under the new credit facility, as well as terms of the new
credit facility, are described under Financing.
On September 18, 2008, Republic entered into an amendment
to the existing credit facility that, subject to the initial
funding under the new credit facility, will amend the terms of
the existing credit facility to be substantially similar to the
terms of the new credit facility, including pricing but
excluding maturity, and otherwise permit the acquisition.
On September 19, 2008, Allied entered into an amendment of
its $400 million accounts receivable facility consenting to
the acquisition. Subsequent to the Allied stockholder vote but
prior to the closing of the merger, Allied expects to enter into
an amendment to its accounts receivable facility extending its
maturity date by an additional 364 days. Allied has entered
into a mandate letter with Calyon New York Branch to begin the
process to obtain the extension. If the extension is obtained,
Republic would not seek to refinance the Allied
6
accounts receivable facility prior to the closing of the
acquisition. If the extension is not obtained, Republic believes
that it could obtain the financing necessary to refinance the
Allied accounts receivable facility on terms that would be
acceptable to the lenders under the new credit facility and the
existing credit facility. Republic may elect to complete such
refinancing concurrently with the closing of the merger, or at
some time prior to May 29, 2009, when the accounts
receivable facility is scheduled to expire.
For more information regarding the financing in connection with
the merger, see Financing.
Listing
of Republic Stock (see page 108)
Republic has agreed to use its best efforts to cause the shares
of Republic common stock to be issued pursuant to the merger and
the shares of Republic common stock to be reserved for issuance
upon exercise or settlement of Allied equity-based awards or
conversion of Allied convertible debentures to be approved for
listing on the NYSE. It is also a condition to the merger that
the shares of Republic common stock issuable in connection with
the merger be approved for listing on the NYSE on or prior to
the effective time of the merger.
New
Republic Governance Structure After the Merger (see
page 108)
Republic and Allied have agreed on a governance structure for
Republic following the completion of the merger, referred to as
the New Republic Governance Structure, as further described
below.
Republic
Board of Directors
During the period commencing on the effective time of the merger
and continuing until the close of business on the day
immediately prior to the third annual meeting of Republic
stockholders held after the effective time, referred to as the
Continuation Period:
|
|
|
|
|
the Republic board of directors must have a Continuing
Republic Committee, consisting solely of five Continuing
Republic Directors, defined as directors who are either
(1) members of the Republic board of directors prior to the
effective time of the merger, determined by the Republic board
of directors to be independent of Republic under the
rules of the NYSE and designated by Republic to be members of
the Republic board of directors as of the effective time of the
merger, or (2) subsequently nominated or appointed to be a
member of the Republic board of directors by the Continuing
Republic Committee;
|
|
|
|
the Republic board of directors must have a Continuing
Allied Committee, consisting solely of five Continuing
Allied Directors, defined as directors who are either
(1) members of the Allied board of directors prior to the
effective time of the merger, determined by the Allied board of
directors to be independent of Allied and Republic
under the rules of the NYSE and designated by Allied to be
members of the Republic board of directors as of the effective
time of the merger, or (2) subsequently nominated or
appointed to be a member of the Republic board of directors by
the Continuing Allied Committee;
|
|
|
|
the Republic board of directors must be comprised of eleven
members, consisting of (1) the Chief Executive Officer of
Republic, (2) five Continuing Republic Directors, and
(3) five Continuing Allied Directors, provided that,
notwithstanding the foregoing, after the Initial Continuation
Period, the size of the Republic board of directors may be
increased by the affirmative vote of a majority of the board of
directors;
|
|
|
|
at each meeting of the Republic stockholders during the
Continuation Period at which directors are to be elected,
(1) the Continuing Republic Committee shall have the
exclusive authority on behalf of Republic to nominate as
directors of the Republic board of directors, a number of
persons for election equal to the number of Continuing Republic
Directors to be elected at such meeting, and (2) the
Continuing Allied Committee shall have the exclusive authority
on behalf of Republic to nominate as directors of the Republic
board of directors, a number of persons for election equal to
the number of Continuing Allied Directors to be elected at such
meeting; and
|
7
|
|
|
|
|
all directors nominated or appointed by the Continuing Republic
Committee or the Continuing Allied Committee, as the case may
be, must be independent of Republic for purposes of
the rules of the NYSE, as determined by a majority of the
persons making the nomination or appointment.
|
|
|
|
|
|
In addition, during the period commencing on the effective time
of the merger and continuing until the close of business on the
day immediately prior to the second annual meeting of Republic
stockholders held after the effective time, referred to as the
Initial Continuation Period, (1) if any Continuing Republic
Director is removed from the Republic board of directors,
becomes disqualified, resigns, retires, dies or otherwise cannot
or will not continue to serve as a member of the Republic board
of directors, such vacancy may only be filled by the Continuing
Republic Committee, and (2) if any Continuing Allied
Director is removed from the Republic board of directors,
becomes disqualified, resigns, retires, dies or otherwise cannot
or will not continue to serve as a member of the Republic board
of directors, such vacancy may only be filled by the Continuing
Allied Committee.
|
Committees
of the Republic Board of Directors
Other than with respect to the Continuing Republic Committee or
the Continuing Allied Committee:
|
|
|
|
|
during the Continuation Period, each committee of the Republic
board of directors must be comprised of five members, consisting
of three Continuing Republic Directors and two Continuing Allied
Directors;
|
|
|
|
the initial chairman of the Audit Committee, the Nominating and
Corporate Governance Committee and the Compensation Committee of
the Republic board of directors as of the effective time of the
merger will be, in each case, the Continuing Republic Director
who was the chairman of such committee immediately prior to the
effective time of the merger; and
|
|
|
|
each Continuing Republic Director and Continuing Allied Director
serving on the Audit Committee, the Nominating and Corporate
Governance Committee or the Compensation Committee of the
Republic board of directors must qualify as
independent under the rules of the NYSE and, as
applicable, the rules of the SEC.
|
Amendments
to the Republic Bylaws
In connection with the merger, the Republic bylaws will be
amended and restated as of the effective time in the form
attached to this joint proxy statement/prospectus as
Annex B in order to facilitate the implementation of the
New Republic Governance Structure, as well as to revise certain
other provisions of the Republic bylaws as agreed to by Republic
and Allied.
Future
Amendments to New Republic Governance Structure
During the Continuation Period, the Republic board of directors
may amend, alter or repeal any provisions included in the
Republic bylaws relating to the New Republic Governance
Structure only upon the affirmative vote of directors
constituting at least seven members of the Republic board of
directors, referred to as the required number. In the event that
the size of the Republic board of directors is increased after
the Initial Continuation Period as described above, the required
number will be increased by one for each additional director
position created.
Conditions
to Completion of the Merger (see page 119)
Each partys obligations to effect the merger is subject to
the satisfaction or waiver of mutual conditions, including the
following:
|
|
|
|
|
receipt of the Republic stockholder approval and Allied
stockholder approval, in each case in accordance with Delaware
law;
|
8
|
|
|
|
|
the expiration or termination of the waiting period (and any
extension thereof) applicable to the merger under the HSR Act;
|
|
|
|
the absence of any law, temporary restraining order or
preliminary or permanent injunction or other order making the
merger illegal or otherwise prohibiting the consummation of the
merger (collectively, restraints);
|
|
|
|
the approval for listing on the NYSE, subject to official notice
of issuance, of the shares of Republic common stock issuable in
connection with the merger; and
|
|
|
|
the effectiveness of, and the absence of any stop order with
respect to, the registration statement on
Form S-4
of which this joint proxy statement/prospectus forms a part.
|
Each of Republics and RS Merger Wedge Inc.s, on the
one hand, and Allieds, on the other hand, obligation to
effect the merger is subject to the satisfaction or waiver of
the following additional conditions:
|
|
|
|
|
(x) certain representations and warranties made by the
other party or parties in the merger agreement regarding
capitalization, authority, broker fees, the opinion of the
financial advisor, takeover laws, rights plans, ownership of
stock, interests in competitors, insurance and RS Merger Wedge
Inc.s operations, being true and correct in all material
respects on the date of the merger agreement and as of the
closing date (or, if applicable, an earlier specified date) and
(y) the other representations and warranties made by the
other party or parties in the merger agreement being true and
correct (without giving effect to any materiality or material
adverse effect qualifications and words of similar import) on
the date of the merger agreement and as of the closing date (or,
if applicable, an earlier specified date), except in each case
where the failure of any such representations and warranties to
be true and correct would not, individually or in the aggregate,
have or reasonably be expected to have a material adverse effect
on the party making the representation or warranty (and provided
that two representations and warranties made by Allied in
respect of its indebtedness must be true and correct on the
closing date without any materiality qualification);
|
|
|
|
the performance by the other party or parties in all material
respects of the covenants required to be performed by it or them
at or before the effective time of the merger;
|
|
|
|
receipt by each of Republic and Allied of an officers
certificate of the other party on the closing date stating that
the closing conditions with respect to such other partys
representations and warranties and covenants have been
satisfied; and
|
|
|
|
receipt by each party of an opinion of its own counsel that the
merger will qualify as a tax-free reorganization.
|
In addition, Republics obligation to complete the merger
is subject to the satisfaction or waiver of the following
additional condition:
|
|
|
|
|
receipt by Republic of written confirmation from the applicable
credit ratings agency that, upon the consummation of the merger,
the consolidated senior unsecured debt of Republic (including
Allied or any Allied subsidiary to the extent an issuer under
certain indentures, and after giving effect to any parent or
other guarantees required by such agency) will be rated either
(i) BBB- or better by Standard & Poors and
Ba1 or better by Moodys, or (ii) Baa3 or better by
Moodys and BB+ or better by Standard &
Poors. Each of Republic and Allied has committed to use
its best efforts to ensure that this closing condition is
satisfied.
|
Termination
of the Merger Agreement (see page 120)
The merger agreement may be terminated at any time before the
effective time of the merger by mutual written consent of
Republic and Allied.
9
The merger agreement may also be terminated prior to the
effective time of the merger by either Republic or Allied if:
|
|
|
|
|
the merger has not been completed on or before May 15, 2009
(the outside date), except that the right to
terminate the merger agreement under this provision will not be
available to any party whose breach or failure to fulfill any
obligation of the merger agreement has been a principal cause of
or resulted in the failure of the merger to occur on or before
the outside date;
|
|
|
|
any restraint having the effect of making the merger illegal or
otherwise prohibiting the completion of the merger becomes final
and nonappealable; provided, however that the party electing to
terminate pursuant to this provision will have used its
reasonable best efforts to oppose any such restraint or to have
such restraint vacated or made inapplicable to the
merger; or
|
|
|
|
the Republic stockholders or Allied stockholders fail to give
the necessary approvals at their special meetings or any
adjournments or postponements thereof.
|
The merger agreement may also be terminated prior to the
effective time of the merger by Republic if:
|
|
|
|
|
prior to the Allied stockholder approval, the Allied board of
directors changes its recommendation to the Allied stockholders
that they adopt the merger agreement unless, within ten business
days, Republic requires the Allied board of directors to
nevertheless submit such adoption to the Allied stockholders for
approval despite such change in recommendation;
|
|
|
|
Allied has breached any of its representations or warranties or
failed to perform in any material respect any of its covenants
or agreements set forth in the merger agreement, and such breach
or failure to perform (i) would prevent Allied from
satisfying the closing conditions of the merger agreement
relating to the accuracy of the representations and warranties
and/or
compliance with covenants, and (ii) cannot be cured by the
outside date or, if capable of being cured by that date, is not
cured within 30 calendar days written notice to
Allied; or
|
|
|
|
prior to the Republic stockholder approval, the Republic board
of directors changes its recommendation to the Republic
stockholders that they approve the Republic share issuance and,
within ten business days, Allied does not require the Republic
board of directors to nevertheless submit the Republic share
issuance to the Republic stockholders for approval despite such
change in recommendation.
|
The merger agreement may also be terminated prior to the
effective time of the merger by Allied if:
|
|
|
|
|
prior to the Republic stockholder approval, the Republic board
of directors changes its recommendation to the Republic
stockholders that they approve the Republic share issuance
unless, within ten business days, Allied requires the Republic
board of directors to nevertheless submit the Republic share
issuance to the Republic stockholders for approval despite such
change in recommendation;
|
|
|
|
Republic has breached any of its representations or warranties
or failed to perform in any material respect any of its
covenants or agreements set forth in the merger agreement, and
such breach or failure to perform (i) would prevent
Republic from satisfying the closing conditions of the merger
agreement relating to the accuracy of the representations and
warranties
and/or
compliance with covenants, and (ii) cannot be cured by the
outside date or, if capable of being cured by that date, is not
cured within 30 calendar days written notice to
Republic; or
|
|
|
|
prior to the Allied stockholder approval, the Allied board of
directors changes its recommendation to the Allied stockholders
that they adopt the merger agreement and, within ten business
days, Republic does not require the Allied board of directors to
nevertheless submit such adoption to the Allied stockholders for
approval despite such change in recommendation.
|
10
Termination
Fees (see page 121)
Termination Fee Payable by Republic. Republic
has agreed to pay Allied a termination fee of $200 million,
and up to $50 million of Allieds reasonable
documented fees and expenses incurred in connection with the
merger and the merger agreement, under any of the following
circumstances:
|
|
|
|
|
if the merger agreement is terminated by Republic or Allied
following the failure by Republic to obtain the Republic
stockholder approval, and (1) prior to such termination, an
acquisition proposal with respect to Republic has been publicly
announced or made known to the Republic board of directors and
(2) within 12 months of such termination, Republic
enters into a binding agreement to effect an acquisition
proposal or consummates an acquisition proposal; or
|
|
|
|
if the merger agreement is terminated by Republic or Allied
following a change in the Republic recommendation, but only if
(1) Allied does not require the Republic board of directors
to nevertheless submit the Republic share issuance to the
Republic stockholders for approval despite such change in the
Republic recommendation or (2) Allied is otherwise entitled
to the payment of a termination fee and expenses under the
circumstances described in the immediately preceding clause.
|
Termination Fee Payable by Allied. Allied has
agreed to pay Republic a termination fee of $200 million,
and up to $50 million of Republics reasonable
documented fees and expenses incurred in connection with the
merger and the merger agreement, under any of the following
circumstances:
|
|
|
|
|
if the merger agreement is terminated by Republic or Allied
following the failure by Allied to obtain the Allied stockholder
approval, and (1) prior to such termination, an acquisition
proposal with respect to Allied has been publicly announced or
made known to the Allied board of directors and (2) within
12 months of such termination, Allied enters into a binding
agreement to effect an acquisition proposal or consummates an
acquisition proposal; or
|
|
|
|
if the merger agreement is terminated by Republic or Allied
following a change in the Allied recommendation, but only if
(1) Republic does not require the Allied board of directors
to nevertheless submit such adoption to the Allied stockholders
for approval despite such change in the Allied recommendation or
(2) Republic is otherwise entitled to the payment of a
termination fee and expenses under the circumstances described
in the immediately preceding clause.
|
Executive
Officers (see page 92)
Republic and Allied have agreed that upon consummation of the
merger the following persons will be executive officers of the
combined company and hold the offices set forth next to their
names:
|
|
|
Name
|
|
Title
|
|
James E. OConnor
|
|
Chief Executive Officer and Chairman of the Board
|
Donald W. Slager
|
|
Chief Operating Officer and President
|
Tod C. Holmes
|
|
Executive Vice President and Chief Financial Officer
|
Michael J. Cordesman
|
|
Executive Vice President
|
Timothy R. Donovan
|
|
Executive Vice President, General Counsel and Secretary
|
Headquarters
(see page 92)
The combined companys corporate headquarters will be
located in Phoenix, Arizona.
11
Special
Meetings of Republic and Allied Stockholders
The
Republic Special Meeting (see page 123)
Meeting. The Republic special meeting will be
held on November 14, 2008 at 1:30 p.m., Eastern time,
in the Atrium on the 7th Floor of the AutoNation Building, 110
S.E. 6th Street, Fort Lauderdale, Florida 33301. At the Republic
special meeting, Republic stockholders will be asked to:
|
|
|
|
|
approve the issuance of shares of Republic common stock and
other securities in connection with the merger; and
|
|
|
|
approve an adjournment of the special meeting, if necessary, to
solicit additional proxies in favor of the foregoing proposal.
|
Record Date; Votes. Republic has fixed the
close of business on October 6, 2008 as the record date,
which is referred to as the Republic record date, for
determining the Republic stockholders entitled to receive notice
of and to vote at the Republic special meeting. Only holders of
record of Republic common stock on the Republic record date are
entitled to receive notice of and vote at the Republic special
meeting, and any adjournment or postponement thereof.
Each share of Republic common stock is entitled to one vote on
each matter brought before the meeting. On the Republic record
date, there were 182,163,533 shares of Republic common
stock issued and outstanding.
Required Vote. The Republic proposals require
different percentages of votes for approval as set forth below:
Republic stockholders must approve the Republic share issuance
under each of (1) the rules of the NYSE and (2) the
Republic bylaws, as follows:
|
|
|
|
|
under the NYSE rules, the Republic share issuance requires the
affirmative vote of holders of shares of Republic common stock
representing a majority of votes cast on the proposal, provided
that the total number of votes cast on the proposal represents a
majority of the total number of shares of Republic common stock
issued and outstanding on the record date for the Republic
special meeting; and
|
|
|
|
under the Republic bylaws, the Republic share issuance requires
the affirmative vote of holders of shares of Republic common
stock representing a majority of the total number of shares of
Republic common stock present, in person or by proxy at the
special meeting, and entitled to vote on the proposal.
|
Approval
of the Republic share issuance by Republic stockholders is a
condition to completion of the merger.
Approval of an adjournment of the Republic special meeting, if
necessary, to solicit additional proxies in favor of the
Republic share issuance requires the affirmative vote of holders
of Republic common stock representing a majority of the total
number of shares of Republic common stock present, in person or
by proxy at the Republic special meeting, and entitled to vote
on the proposal.
Failure to Vote; Abstentions. If you are a
Republic stockholder, any of your shares as to which you abstain
will have the same effect as a vote AGAINST
the Republic share issuance. Under the NYSE rules, any of your
shares that are not voted on the Republic share issuance will
not be counted to determine if holders representing a majority
of the issued and outstanding shares of Republic common stock
have cast a vote on that proposal, making the requirement that
votes cast represent a majority of the total issued and
outstanding shares of Republic common stock more difficult to
meet. Any of your shares as to which you abstain or which are
present and entitled to vote but not voted will have the same
effect as a vote AGAINST approving an
adjournment of the Republic special meeting. For more
information regarding the effect of abstentions, a failure to
vote or broker non-vote, see The Republic Special
Meeting Votes Required to Approve Republic
Proposals on page 124.
12
Revocation of Proxies. You have the power to
revoke your proxy at any time before the proxy is voted at the
Republic special meeting. You can revoke your proxy in one of
four ways:
|
|
|
|
|
you can send a signed notice of revocation of proxy;
|
|
|
|
you can grant a new, valid proxy bearing a later date;
|
|
|
|
you can revoke the proxy in accordance with the telephone or
Internet proxy submission procedures described in the proxy
voting instructions attached to the proxy card; or
|
|
|
|
if you are a holder of record, you can attend the Republic
special meeting and vote in person, which will automatically
cancel any proxy previously given, but your attendance alone
will not revoke any proxy that you have previously given.
|
If you choose either of the first two methods to revoke your
proxy, you must submit your notice of revocation or your new
proxy to Republics Corporate Secretary at the Republic
address under The Companies beginning on
page 105 so that it is received no later than the beginning
of the Republic special meeting.
Stock Ownership of Republic Directors and Executive
Officers. On October 6, 2008, the Republic
record date, directors and executive officers of Republic and
their respective affiliates owned and were entitled to vote
approximately 1,000,052 shares of Republic common stock, or
approximately 0.55% of the shares of Republic common stock
outstanding on that date. To Republics knowledge, the
directors and executive officers of Republic and their
respective affiliates intend to vote their shares of Republic
common stock in favor of all Republic proposals at the Republic
special meeting, and any adjournment or postponement thereof.
The
Allied Special Meeting (see page 127)
Meeting. The Allied special meeting will be
held on November 14, 2008, at 11:30 a.m., Mountain
time, at the Marriott at McDowell Mountains, 16770 North
Perimeter Drive, Scottsdale, Arizona 85260. At the Allied
special meeting, Allied stockholders will be asked to:
|
|
|
|
|
adopt the merger agreement, pursuant to which Allied will become
a wholly owned subsidiary of Republic; and
|
|
|
|
approve an adjournment of the Allied special meeting, if
necessary, to solicit additional proxies in favor of the
foregoing proposal.
|
Record Date; Votes. Allied has fixed the close
of business on October 6, 2008 as the record date, which is
referred to as the Allied record date, for determining the
Allied stockholders entitled to receive notice of and to vote at
the Allied special meeting. Only holders of record of Allied
common stock on the Allied record date are entitled to receive
notice of and vote at the Allied special meeting, and any
adjournment or postponement thereof.
Each share of Allied common stock is entitled to one vote on
each matter brought before the meeting. On the Allied record
date, there were 433,493,501 shares of Allied common stock
issued and outstanding.
Required Vote. The Allied proposals require
different percentages of votes in order to approve them:
|
|
|
|
|
the adoption of the merger agreement requires the affirmative
vote of holders of shares of Allied common stock representing a
majority of the total number of shares of Allied common stock
issued and outstanding on the Allied record date; and
|
|
|
|
the approval of an adjournment of the Allied special meeting, if
necessary, to solicit additional proxies in favor of the
adoption of the merger agreement, requires the affirmative vote
of holders of shares of Allied common stock representing a
majority of the total number of shares of Allied common stock
present, in person or by proxy at the Allied special meeting,
and entitled to vote on the proposal.
|
Adoption
of the merger agreement by Allied stockholders is a condition to
completion of the merger.
Failure to Vote; Abstentions. If you are an
Allied stockholder, any of your shares as to which you abstain
or which are not voted will have the same effect as a vote
AGAINST adopting the merger
13
agreement and any of your shares as to which you abstain or
which are present and entitled to vote but not voted will have
the same effect as a vote against approving an adjournment of
the Allied special meeting. For more information regarding the
effect of abstentions, a failure to vote or broker non-votes,
see The Allied Special Meeting Votes Required
to Approve Allied Proposals beginning on page 128.
Revocation of Proxies. You have the power to
revoke your proxy at any time before the proxy is voted at the
Allied special meeting. You can revoke your proxy in one of four
ways:
|
|
|
|
|
you can send a signed notice of revocation of proxy;
|
|
|
|
you can grant a new, valid proxy bearing a later date;
|
|
|
|
you can revoke the proxy in accordance with the telephone or
Internet proxy submission procedures described in the proxy
voting instructions attached to the proxy card; or
|
|
|
|
if you are a holder of record, you can attend the Allied special
meeting and vote in person, which will automatically cancel any
proxy previously given, but your attendance alone will not
revoke any proxy that you have previously given.
|
If you choose either of the first two methods to revoke your
proxy, you must submit your notice of revocation or your new
proxy to Allieds Corporate Secretary at the Allied address
under The Companies beginning on page 105 so
that it is received no later than the beginning of the Allied
special meeting.
Stock Ownership of Directors and Executive
Officers. On October 6, 2008, the Allied
record date, directors and executive officers of Allied and
their respective affiliates owned and were entitled to vote
approximately 48,876,385 shares of Allied common stock, or
approximately 11.3% of the shares of Allied common stock
outstanding on that date. To Allieds knowledge, the
directors and executive officers of Allied and their respective
affiliates intend to vote their shares of Allied common stock in
favor of all Allied proposals at the Allied special meeting, and
any adjournment or postponement thereof. Included in the
foregoing are Allied shares owned by entities affiliated with
Blackstone Capital Partners II Merchant Bank Fund L.P.
(collectively, Blackstone), who currently have the
right to nominate three of Allieds directors and who
together owned approximately 11.1% of Allieds outstanding
shares of common stock as of the Allied record date. Blackstone
has agreed, in connection with any proposed business combination
involving Allied, to vote their shares in the manner recommended
by a majority of the Allied board of directors. Accordingly,
Allied expects that all shares of Allied common stock owned by
Blackstone will be voted in favor of the merger.
Blackstones right to nominate any directors will terminate
at the effective time of the merger.
Recent
Developments
Waste
Management Proposal
On July 14, 2008, Republic received from Waste Management,
Inc. an unsolicited proposal to acquire all of Republics
outstanding common stock for $34.00 per share in cash, subject
to Wastes conducting a due diligence review of Republic,
obtaining financing, clearing all antitrust reviews without
divestitures that would have a material adverse effect,
maintaining its investment grade credit ratings and other
conditions. On July 17, 2008, the Republic board of
directors conducted a telephonic meeting to review the Waste
proposal. After careful consultation with its legal and
financial advisors and further deliberations, the Republic board
of directors determined unanimously that the Waste proposal did
not constitute, and could not reasonably be expected to lead to,
a proposal for a transaction that is or would be more favorable
to Republic stockholders than the merger transaction between
Republic and Allied. On July 18, 2008, Republic issued a
press release, emphasizing that Republic is not for sale and
that as a result of the Republic board of directors
determination, and in accordance with Republics
obligations under the terms of the merger agreement with Allied,
Republic may not furnish information to, or have discussions and
negotiations with, Waste. At the meeting, the Republic board of
directors also reaffirmed its recommendation to Republic
stockholders regarding the existing transaction with Allied. On
August 11, 2008, the Republic board of directors received a
revised unsolicited proposal from Waste to acquire all of the
Republic outstanding common stock for $37.00 per share in cash,
which proposal remained subject to substantial conditions. On
August 14, 2008, the Republic board of directors determined
unanimously that the revised Waste proposal did not meet the
standard in the merger
14
agreement to allow Republic to furnish information to, or have
discussions and negotiations with, Waste. See The
Merger Background of the Merger.
Certain
Litigation
On July 25, 2008, a putative class action was filed, and on
August 15, 2008 was amended, in the Court of Chancery of
the State of Delaware by the New Jersey Carpenters Pension and
the New Jersey Carpenters Annuity Funds against Republic and the
members of the Republic board of directors, individually.
On August 21, 2008, a second putative class action was
filed in the Court of Chancery of the State of Delaware by David
Shade against Republic, the members of the Republic board of
directors, individually, and Allied. On September 22, 2008,
the New Jersey Carpenters and the Shade cases were
consolidated by the Court of Chancery, and on September 24,
2008, the plaintiffs in the Delaware case, now known as In
Re: Republic Services Inc. Shareholders Litigation, filed a
verified consolidated amended class action complaint in the
Court of Chancery of the State of Delaware. Discovery in the
Delaware case is ongoing.
On September 5, 2008, a putative class action was filed in
the Circuit Court in and for Broward County, Florida, by the
Teamsters Local 456 Annuity Fund against Republic and the
members of the Republic board of directors, individually. On
September 24, 2008, the defendants in the Florida
litigation filed a Motion to Stay or to Dismiss the lawsuit in
light of the consolidated Delaware class action. On
October 6, 2008, the Circuit Court ordered full briefing on
the Motion to Stay or Dismiss and a hearing on the Motion is set
for October 31, 2008. No further activity in the Florida
litigation was allowed by the Circuit Court pending the hearing.
However, the Circuit Court ordered, in the interim, defendants
to provide the Florida plaintiff with copies of any discovery
produced to plaintiffs in the Delaware action.
Each of these suits primarily seeks to enjoin the proposed
transaction between Republic and Allied and compel Republic to
accept the unsolicited proposals made by Waste, or at least
compel the Republic board of directors to further consider and
evaluate the Waste proposals, as well as damages and
attorneys fees.
Rights
Plan and Amended and Restated Bylaws
On July 28, 2008, the Republic board of directors declared
a dividend of one preferred share purchase right, each of which
is referred to as a right and collectively as the rights, for
each outstanding share of Republic common stock. The dividend
was paid to holders of record of Republics common stock as
of the close of business on August 7, 2008. The specific
terms of the rights are contained in the Rights Agreement, dated
as of July 28, 2008, by and between Republic and The Bank
of New York Mellon, as Rights Agent.
The Republic board of directors adopted the Rights Agreement to
protect Republic stockholders from coercive or otherwise unfair
takeover tactics. In general terms, the rights impose a
significant penalty upon any person or group which acquires
beneficial ownership of 10% (20% in the case of existing 10%
holders) or more of Republics outstanding common stock,
including derivatives, unless such acquisition was approved by
the Republic board of directors or such acquisition was in
connection with an offer for all of the outstanding shares of
Republic common stock for the same consideration. The rights
will terminate concurrently with the acquisition of more than
50% of Republics outstanding shares of common stock not
owned by the acquiring person in such an offer, provided that
the acquiring person irrevocably commits to acquire all
remaining untendered shares for the same consideration as in the
tender offer as promptly as practicable following completion of
the offer. See Description of Republic Capital Stock
and Amendment to the Republic Amended and Restated
Bylaws.
Also on July 28, 2008, Republic adopted bylaw amendments
intended to provide orderly procedures to regulate the written
consent process and to require notice and information about
stockholder proposals. Stockholders seeking to act by written
consent must request the Republic board of directors set a
record date for stockholders entitled to consent. The record
date must be set within ten days of a request and must be no
later than ten days after the Republic board of directors acts.
Absent this bylaw, action could be taken by consent without
prior notice to Republic and all of its stockholders.
15
SELECTED
HISTORICAL CONSOLIDATED FINANCIAL DATA OF REPUBLIC
(in millions, except per share data)
The following tables set forth the selected historical
consolidated financial data for Republic. The selected
consolidated financial data as of and for the fiscal years ended
December 31, 2007, 2006, 2005, 2004 and 2003 have been
derived from Republics consolidated financial statements.
You should not take historical results as necessarily indicative
of the results that may be expected for any future period. The
selected consolidated financial data as of and for the six
months ended June 30, 2008 and June 30, 2007 have been
derived from Republics unaudited consolidated condensed
financial statements, which include all adjustments, consisting
only of normal, recurring adjustments, that Republic considers
necessary for the fair presentation of the financial position
and results of operations for these periods. The results for the
six months ended June 30, 2008 are not necessarily
indicative of results that may be expected for the entire fiscal
year. Republics shares, per share data and weighted
average common and common equivalent shares outstanding have
been retroactively adjusted for all periods prior to 2007 to
reflect a
3-for-2
stock split in the form of a stock dividend that was effective
on March 16, 2007.
You should read this selected consolidated financial data in
conjunction with Republics Annual Report on
Form 10-K
for the fiscal year ended December 31, 2007 and
Republics Quarterly Report on
Form 10-Q
for the period ended June 30, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
Ended June 30,
|
|
|
Years Ended December 31,
|
|
|
|
2008(1)
|
|
|
2007(2)
|
|
|
2007(2)
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Statement of Income Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
1,606.7
|
|
|
$
|
1,574.0
|
|
|
$
|
3,176.2
|
|
|
$
|
3,070.6
|
|
|
$
|
2,863.9
|
|
|
$
|
2,708.1
|
|
|
$
|
2,517.8
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of operations
|
|
|
1,054.0
|
|
|
|
986.3
|
|
|
|
1,997.3
|
|
|
|
1,924.4
|
|
|
|
1,803.9
|
|
|
|
1,714.4
|
|
|
|
1,605.4
|
|
Depreciation, amortization and depletion
|
|
|
149.6
|
|
|
|
155.9
|
|
|
|
305.5
|
|
|
|
296.0
|
|
|
|
278.8
|
|
|
|
259.4
|
|
|
|
239.1
|
|
Accretion
|
|
|
8.9
|
|
|
|
8.3
|
|
|
|
17.1
|
|
|
|
15.7
|
|
|
|
14.5
|
|
|
|
13.7
|
|
|
|
12.7
|
|
Selling, general and administrative
|
|
|
166.4
|
|
|
|
155.7
|
|
|
|
320.3
|
|
|
|
315.0
|
|
|
|
289.5
|
|
|
|
268.3
|
|
|
|
247.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
227.8
|
|
|
|
267.8
|
|
|
|
536.0
|
|
|
|
519.5
|
|
|
|
477.2
|
|
|
|
452.3
|
|
|
|
412.7
|
|
Interest expense
|
|
|
(42.5
|
)
|
|
|
(47.2
|
)
|
|
|
(94.8
|
)
|
|
|
(95.8
|
)
|
|
|
(81.0
|
)
|
|
|
(76.7
|
)
|
|
|
(78.0
|
)
|
Interest income
|
|
|
5.3
|
|
|
|
6.4
|
|
|
|
12.8
|
|
|
|
15.8
|
|
|
|
11.4
|
|
|
|
6.9
|
|
|
|
9.5
|
|
Other income (expenses), net
|
|
|
.9
|
|
|
|
1.1
|
|
|
|
14.1
|
|
|
|
4.2
|
|
|
|
1.6
|
|
|
|
1.2
|
|
|
|
3.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
191.5
|
|
|
|
228.1
|
|
|
|
468.1
|
|
|
|
443.7
|
|
|
|
409.2
|
|
|
|
383.7
|
|
|
|
347.4
|
|
Provision for income taxes
|
|
|
74.7
|
|
|
|
87.0
|
|
|
|
177.9
|
|
|
|
164.1
|
|
|
|
155.5
|
|
|
|
145.8
|
|
|
|
132.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before cumulative effect of
changes in accounting principles
|
|
|
116.8
|
|
|
|
141.1
|
|
|
|
290.2
|
|
|
|
279.6
|
|
|
|
253.7
|
|
|
|
237.9
|
|
|
|
215.4
|
|
Cumulative effect of changes in accounting principles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(37.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
116.8
|
|
|
$
|
141.1
|
|
|
$
|
290.2
|
|
|
$
|
279.6
|
|
|
$
|
253.7
|
|
|
$
|
237.9
|
|
|
$
|
177.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before cumulative effect of changes in accounting principles
|
|
$
|
.64
|
|
|
$
|
.73
|
|
|
$
|
1.53
|
|
|
$
|
1.41
|
|
|
$
|
1.23
|
|
|
$
|
1.10
|
|
|
$
|
.96
|
|
Cumulative effect of changes in accounting principles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(.17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
.64
|
|
|
$
|
.73
|
|
|
$
|
1.53
|
|
|
$
|
1.41
|
|
|
$
|
1.23
|
|
|
$
|
1.10
|
|
|
$
|
0.79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
182.7
|
|
|
|
193.2
|
|
|
|
190.1
|
|
|
|
198.2
|
|
|
|
207.0
|
|
|
|
217.3
|
|
|
|
224.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before cumulative effect of changes in accounting principles
|
|
$
|
.63
|
|
|
$
|
.72
|
|
|
$
|
1.51
|
|
|
$
|
1.39
|
|
|
$
|
1.20
|
|
|
$
|
1.08
|
|
|
$
|
.95
|
|
Cumulative effect of changes in accounting principles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(.17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
Ended June 30,
|
|
|
Years Ended December 31,
|
|
|
|
2008(1)
|
|
|
2007(2)
|
|
|
2007(2)
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
Diluted earnings per share
|
|
$
|
.63
|
|
|
$
|
.72
|
|
|
$
|
1.51
|
|
|
$
|
1.39
|
|
|
$
|
1.20
|
|
|
$
|
1.08
|
|
|
$
|
.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common and common
equivalent shares outstanding
|
|
|
184.5
|
|
|
|
195.1
|
|
|
|
192.0
|
|
|
|
200.6
|
|
|
|
210.8
|
|
|
|
221.1
|
|
|
|
227.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends per common share
|
|
$
|
.3400
|
|
|
$
|
.2134
|
|
|
$
|
.5534
|
|
|
$
|
.4000
|
|
|
$
|
.3466
|
|
|
$
|
.2400
|
|
|
$
|
.0800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
13.1
|
|
|
$
|
25.9
|
|
|
$
|
21.8
|
|
|
$
|
29.1
|
|
|
$
|
131.8
|
|
|
$
|
141.5
|
|
|
$
|
119.2
|
|
Restricted cash and marketable securities
|
|
|
177.8
|
|
|
|
129.4
|
|
|
|
165.0
|
|
|
|
153.3
|
|
|
|
255.3
|
|
|
|
275.7
|
|
|
|
397.4
|
|
Total assets
|
|
|
4,547.5
|
|
|
|
4,416.2
|
|
|
|
4,467.8
|
|
|
|
4,429.4
|
|
|
|
4,550.5
|
|
|
|
4,464.6
|
|
|
|
4,554.1
|
|
Total debt
|
|
|
1,617.0
|
|
|
|
1,498.3
|
|
|
|
1,567.8
|
|
|
|
1,547.2
|
|
|
|
1,475.1
|
|
|
|
1,354.3
|
|
|
|
1,520.3
|
|
Total stockholders equity
|
|
|
1,261.8
|
|
|
|
1,388.4
|
|
|
|
1,303.8
|
|
|
|
1,422.1
|
|
|
|
1,605.8
|
|
|
|
1,872.5
|
|
|
|
1,904.5
|
|
|
|
|
(1) |
|
During the six months ended June 30, 2008, Republic
recorded a pre-tax charge of $34.0 million
($21.8 million, or $.12 per diluted share, net of tax)
related to additional orders received from the Ohio
Environmental Protection Agency regarding environmental
conditions at its Countywide Recycling and Disposal Facility in
Ohio. Also during the six months ended June 30, 2008,
Republic recorded a pre-tax charge of $35.0 million
($22.0 million, or $.12 per diluted share, net of tax)
related to estimated costs believed required to comply with a
Consent Decree and Settlement Agreement that Republic signed
with the U.S. EPA, the Bureau of Land Management and Clark
County, Nevada related to the Sunrise Landfill in Nevada. |
|
(2) |
|
During the six months ended June 30, 2007, Republic
recorded a pre-tax charge of $22.0 million
($13.5 million, or $.07 per diluted share, net of tax)
related to estimated costs believed required to comply with
final findings and orders issued by the Ohio Environmental
Protection Agency in response to environmental conditions at its
Countywide Recycling and Disposal Facility in Ohio. During the
three months ended September 30, 2007, Republic agreed to
take certain additional remedial actions at Countywide and
recorded an additional pre-tax charge of $23.3 million
($14.4 million, or $.08 per diluted share, net of tax). |
17
SELECTED
HISTORICAL CONSOLIDATED FINANCIAL DATA OF ALLIED
(in millions, except per share data)
The following tables set forth the selected historical
consolidated financial data for Allied. The selected
consolidated financial data as of and for the fiscal years ended
December 31, 2007, 2006, 2005, 2004 and 2003 have been
derived from Allieds consolidated financial statements.
You should not take historical results as necessarily indicative
of the results that may be expected for any future period. The
selected consolidated financial data as of and for the six
months ended June 30, 2008 and June 30, 2007 have been
derived from Allieds unaudited consolidated condensed
financial statements, which include all adjustments, consisting
only of normal, recurring adjustments, that Allied considers
necessary for the fair presentation of the financial position
and results of operations for these periods. The results for the
six months ended June 30, 2008 are not necessarily
indicative of results that may be expected for the entire fiscal
year.
You should read this selected consolidated financial data in
conjunction with Allieds Annual Report on
Form 10-K
for the fiscal year ended December 31, 2007, Allieds
Current Report on Form 8-K dated May 5, 2008, in which
certain previously reported financial information was
reclassified to reflect the realignment of their organizational
structure during the first quarter of 2008, and Allieds
Quarterly Report on
Form 10-Q
for the period ended June 30, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003(5)
|
|
|
Statement of Operations
Data(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
3,066.5
|
|
|
$
|
2,992.1
|
|
|
$
|
6,068.7
|
|
|
$
|
5,908.5
|
|
|
$
|
5,612.2
|
|
|
$
|
5,396.5
|
|
|
$
|
5,264.1
|
|
Cost of operations
|
|
|
1,920.3
|
|
|
|
1,886.8
|
|
|
|
3,787.1
|
|
|
|
3,786.4
|
|
|
|
3,654.6
|
|
|
|
3,428.8
|
|
|
|
3,235.8
|
|
Selling, general and administrative expenses
|
|
|
292.1
|
|
|
|
324.2
|
|
|
|
631.9
|
|
|
|
587.3
|
|
|
|
510.2
|
|
|
|
544.7
|
|
|
|
471.7
|
|
Merger-related costs
|
|
|
9.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
277.5
|
|
|
|
269.9
|
|
|
|
553.5
|
|
|
|
557.7
|
|
|
|
543.6
|
|
|
|
547.1
|
|
|
|
534.1
|
|
Loss (gain) from divestitures and asset
impairments(2)
|
|
|
23.8
|
|
|
|
1.5
|
|
|
|
40.5
|
|
|
|
22.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
543.8
|
|
|
|
509.7
|
|
|
|
1,055.7
|
|
|
|
954.6
|
|
|
|
903.8
|
|
|
|
875.9
|
|
|
|
1,022.5
|
|
Interest expense and
other(3)
|
|
|
216.1
|
|
|
|
294.1
|
|
|
|
538.4
|
|
|
|
563.4
|
|
|
|
583.1
|
|
|
|
752.5
|
|
|
|
826.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations before income taxes
|
|
|
327.7
|
|
|
|
215.6
|
|
|
|
517.3
|
|
|
|
391.2
|
|
|
|
320.7
|
|
|
|
123.4
|
|
|
|
196.4
|
|
Income tax expense
|
|
|
142.8
|
|
|
|
90.3
|
|
|
|
207.1
|
|
|
|
235.3
|
|
|
|
131.1
|
|
|
|
70.6
|
|
|
|
86.6
|
|
Minority interests
|
|
|
0.9
|
|
|
|
|
|
|
|
0.4
|
|
|
|
0.1
|
|
|
|
(0.2
|
)
|
|
|
(2.7
|
)
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
184.0
|
|
|
$
|
125.3
|
|
|
$
|
309.8
|
|
|
$
|
155.8
|
|
|
$
|
189.8
|
|
|
$
|
55.5
|
|
|
$
|
107.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
.43
|
|
|
$
|
.29
|
|
|
$
|
.74
|
|
|
$
|
.32
|
|
|
$
|
.42
|
|
|
$
|
.11
|
|
|
$
|
(2.37
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
|
|
|
411.1
|
|
|
|
368.2
|
|
|
|
368.8
|
|
|
|
356.7
|
|
|
|
326.9
|
|
|
|
315.0
|
|
|
|
203.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
.42
|
|
|
$
|
.29
|
|
|
$
|
.71
|
|
|
$
|
.32
|
|
|
$
|
.42
|
|
|
$
|
.11
|
|
|
$
|
(2.37
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common and common equivalent shares
|
|
|
444.8
|
|
|
|
381.5
|
|
|
|
443.0
|
|
|
|
359.3
|
|
|
|
330.1
|
|
|
|
319.7
|
|
|
|
203.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet
Data(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
69.4
|
|
|
$
|
107.6
|
|
|
$
|
230.9
|
|
|
$
|
94.1
|
|
|
$
|
56.1
|
|
|
$
|
68.0
|
|
|
$
|
444.7
|
|
Total assets
|
|
|
13,936.3
|
|
|
|
13,863.6
|
|
|
|
13,948.7
|
|
|
|
13,811.0
|
|
|
|
13,661.3
|
|
|
|
13,539.2
|
|
|
|
13,860.9
|
|
Total debt
|
|
|
6,578.1
|
|
|
|
6,861.3
|
|
|
|
6,642.9
|
|
|
|
6,910.6
|
|
|
|
7,091.7
|
|
|
|
7,757.0
|
|
|
|
8,234.1
|
|
Stockholders
equity(4)
|
|
|
4,107.2
|
|
|
|
3,732.4
|
|
|
|
3,904.2
|
|
|
|
3,598.9
|
|
|
|
3,439.4
|
|
|
|
2,604.9
|
|
|
|
2,517.7
|
|
18
|
|
|
(1) |
|
During 2007, 2004 and 2003, Allied sold or held for sale certain
operations that met the criteria for reporting as discontinued
operations. The selected financial data for all prior periods
has been reclassified to exclude these operations from
continuing operations. |
|
(2) |
|
Loss (gain) from divestitures and asset impairments includes
asset sales completed as a result of Allieds market
rationalization focus and are not included in discontinued
operations. The amount of $23.8 million for the six months
ended June 30, 2008 includes asset impairment charges of
$22.9 million related to two landfill closures in
Allieds Midwest region. The amount of $40.5 million
for the year ended December 31, 2007 includes asset
impairments of $27.1 million, of which $24.5 million
related to the asset impairment charge for one of the Midwest
region landfills mentioned previously. The amount of
$22.5 million for the year ended December 31, 2006
includes $9.7 million of landfill asset impairments
resulting from managements decision to discontinue
development and operations of certain sites and a
$5.2 million charge related to the relocation of
Allieds operations support center. |
|
(3) |
|
Includes costs incurred to extinguish debt for the years ended
December 31, 2007, 2006, 2005, 2004 and 2003 of
$59.6 million, $41.3 million, $62.6 million,
$156.2 million and $108.1 million, respectively. |
|
(4) |
|
In 2006, Allied recorded an after-tax charge of
$57.4 million to stockholders equity relating to the
adoption of SFAS No. 158, Employers
Accounting for Defined Benefit Pension and Other Postretirement
Plans an amendment of FASB Statements No. 87,
88, 106 and 132(R) (SFAS 158). |
|
(5) |
|
During December 2003, all of Allieds Series A Preferred
Stock was exchanged for 110.5 million shares of common
stock. In connection with the exchange, Allied recorded a
reduction to net income available to common shareholders of
$496.6 million for the fair value of the incremental shares
of common stock issued to the holders of the preferred stock
over the amount the holders would have received under the
original conversion provisions. |
19
SELECTED
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL DATA
The following Selected Unaudited Pro Forma Condensed
Consolidated Financial Data is based on the historical financial
data of Republic and Allied, and has been prepared to illustrate
the effects of the merger. The Selected Unaudited Pro Forma
Condensed Consolidated Statements of Income from Continuing
Operations Data below is presented as if the merger were
completed on January 1, 2007, and the Selected Unaudited
Pro Forma Condensed Consolidated Balance Sheet Data below is
presented as if the merger were completed on June 30, 2008.
This data should be read in conjunction with Republics and
Allieds historical consolidated financial statements and
accompanying notes in their Annual Reports on
Form 10-K
as of and for the year ended December 31, 2007, their
Quarterly Reports on
Form 10-Q
as of and for the six months ended June 30, 2008, and
Allieds Current Report on Form 8-K dated May 5, 2008, in
which certain previously reported financial information was
reclassified to reflect the realignment of their organizational
structure during the first quarter of 2008. See also the
Unaudited Pro Forma Condensed Consolidated Financial Statements
and notes thereto beginning on page 143.
|
|
|
|
|
|
|
|
|
|
|
For the Six Months
|
|
|
For the Year Ended
|
|
|
|
Ended June 30, 2008
|
|
|
December 31, 2007
|
|
|
|
(in millions,
|
|
|
(in millions,
|
|
|
|
except per
|
|
|
except per
|
|
|
|
share data)
|
|
|
share data)
|
|
|
STATEMENT OF INCOME FROM CONTINUING OPERATIONS DATA:
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
4,673.2
|
|
|
$
|
9,244.9
|
|
Operating income
|
|
|
743.4
|
|
|
|
1,527.6
|
|
Income from continuing operations
|
|
|
285.4
|
|
|
|
571.5
|
|
Income from continuing operations available to common
shareholders
|
|
|
279.2
|
|
|
|
534.0
|
|
Basic income from continuing operations available to common
shareholders per share
|
|
|
.76
|
|
|
|
1.49
|
|
Diluted income from continuing operations available to common
shareholders per share
|
|
|
.74
|
|
|
|
1.47
|
|
Cash dividends per common share
|
|
|
.34
|
|
|
|
.55
|
|
|
|
|
|
|
|
|
As of June 30, 2008
|
|
|
|
(in millions)
|
|
|
BALANCE SHEET DATA:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
19.0
|
|
Restricted cash (current and non-current)
|
|
|
262.9
|
|
Total assets
|
|
|
20,441.6
|
|
Total debt
|
|
|
8,197.4
|
|
Total stockholders equity
|
|
|
7,457.3
|
|
20
COMPARATIVE
HISTORICAL AND PRO FORMA PER SHARE DATA
The following table sets forth selected per share data for
Republic and Allied separately on a historical basis. It also
includes unaudited pro forma consolidated per share data for
Republic, which combines the data of Republic and Allied on a
pro forma basis giving effect to the merger, and it includes
equivalent per share data for Allied. This data should be read
in conjunction with Republics and Allieds historical
consolidated financial statements and accompanying notes in
their Annual Reports on
Form 10-K
as of and for the year ended December 31, 2007, their
Quarterly Reports on
Form 10-Q
as of and for the six months ended June 30, 2008, and
Allieds Current Report on Form 8-K dated May 5, 2008, in
which certain previously reported financial information was
reclassified to reflect the realignment of their organizational
structure during the first quarter of 2008. See also the
Unaudited Pro Forma Condensed Consolidated Financial Statements
and notes thereto beginning on page 143.
|
|
|
|
|
|
|
|
|
|
|
As of and for the
|
|
|
For the
|
|
|
|
Six Months Ended
|
|
|
Year Ended
|
|
|
|
June 30, 2008
|
|
|
December 31, 2007
|
|
|
Republic Historical Per Share Data:
|
|
|
|
|
|
|
|
|
Income from continuing operations available to common
shareholders
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
.64
|
|
|
$
|
1.53
|
|
Diluted
|
|
|
.63
|
|
|
|
1.51
|
|
Cash dividends per common share
|
|
|
.34
|
|
|
|
.55
|
|
Book value per common share
|
|
|
6.94
|
|
|
|
N/A
|
|
Republic Unaudited Pro Forma Consolidated Per Share Data:
|
|
|
|
|
|
|
|
|
Income from continuing operations available to common
shareholders
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
.76
|
|
|
$
|
1.49
|
|
Diluted
|
|
|
.74
|
|
|
|
1.47
|
|
Cash dividends per common share
|
|
|
.34
|
|
|
|
.55
|
|
Book value per common share
|
|
|
19.72
|
|
|
|
N/A
|
|
Allied Historical Per Share Data:
|
|
|
|
|
|
|
|
|
Income from continuing operations available to common
shareholders
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
.43
|
|
|
$
|
.74
|
|
Diluted
|
|
|
.42
|
|
|
|
.71
|
|
Cash dividends per common share
|
|
|
|
|
|
|
|
|
Book value per common share
|
|
|
9.48
|
|
|
|
N/A
|
|
Allied Unaudited Equivalent Pro Forma Per Share
Data:(1)
|
|
|
|
|
|
|
|
|
Income from continuing operations available to common
shareholders
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
.34
|
|
|
$
|
.67
|
|
Diluted
|
|
|
.33
|
|
|
|
.66
|
|
Cash dividends per common share
|
|
|
.15
|
|
|
|
.25
|
|
Book value per common share
|
|
|
8.87
|
|
|
|
N/A
|
|
|
|
|
(1) |
|
The equivalent pro forma per share data for Allied was
calculated by multiplying the Republic pro forma consolidated
per share data above by the exchange ratio of .45. Under the
terms of the merger agreement, Allied stockholders will receive
.45 shares of Republic stock for each share of Allied
common stock held at the effective time of the merger. |
21
COMPARATIVE
PER SHARE MARKET PRICE AND DIVIDEND INFORMATION
Shares of Republic common stock and Allied common stock are each
listed and principally traded on the NYSE. Republic common stock
is listed for trading under the symbol RSG and
Allied common stock is listed for trading under the symbol
AW. The following table sets forth, for the periods
indicated, the high and low sales prices per share of Republic
common stock and Allied common stock, in each case as reported
on the consolidated tape of the NYSE, and the cash dividends per
share of common stock, as reported, respectively, in
Republics and Allieds Annual Reports on
Form 10-K
for the year ended December 31, 2007 with respect to years
2006 and 2007, and thereafter as reported in published financial
sources. Republics per share data have been retroactively
adjusted for all periods prior to March 16, 2007 to reflect
a 3-for-2 stock split in the form of a stock dividend that was
effective on that date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Republic Common Stock
|
|
|
Allied Common Stock
|
|
|
|
Market Price
|
|
|
|
|
|
Market Price
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
Dividends
|
|
|
High
|
|
|
Low
|
|
|
Dividends
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
28.49
|
|
|
$
|
24.47
|
|
|
$
|
.0933
|
|
|
$
|
12.24
|
|
|
$
|
8.53
|
|
|
$
|
|
|
Second Quarter
|
|
|
29.47
|
|
|
|
25.75
|
|
|
|
.0933
|
|
|
|
14.26
|
|
|
|
10.66
|
|
|
|
|
|
Third Quarter
|
|
|
27.53
|
|
|
|
25.04
|
|
|
|
.1067
|
|
|
|
11.27
|
|
|
|
9.78
|
|
|
|
|
|
Fourth Quarter
|
|
|
28.83
|
|
|
|
26.57
|
|
|
|
.1067
|
|
|
|
13.50
|
|
|
|
11.19
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
29.67
|
|
|
|
26.22
|
|
|
|
.1067
|
|
|
|
13.22
|
|
|
|
12.23
|
|
|
|
|
|
Second Quarter
|
|
|
31.09
|
|
|
|
27.05
|
|
|
|
.1067
|
|
|
|
14.00
|
|
|
|
12.41
|
|
|
|
|
|
Third Quarter
|
|
|
33.26
|
|
|
|
27.93
|
|
|
|
.1700
|
|
|
|
13.97
|
|
|
|
11.90
|
|
|
|
|
|
Fourth Quarter
|
|
|
35.00
|
|
|
|
30.90
|
|
|
|
.1700
|
|
|
|
13.15
|
|
|
|
10.75
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
32.00
|
|
|
|
27.30
|
|
|
|
.1700
|
|
|
|
10.90
|
|
|
|
9.30
|
|
|
|
|
|
Second Quarter
|
|
|
34.44
|
|
|
|
29.09
|
|
|
|
.1700
|
|
|
|
15.00
|
|
|
|
11.12
|
|
|
|
|
|
Third Quarter
|
|
|
36.52
|
|
|
|
27.29
|
|
|
|
.1900
|
|
|
|
13.72
|
|
|
|
10.73
|
|
|
|
|
|
Fourth Quarter (through October 9, 2008)
|
|
|
29.96
|
|
|
|
22.58
|
|
|
|
|
|
|
|
11.28
|
|
|
|
8.60
|
|
|
|
|
|
The table below sets forth the closing sale prices of Republic
common stock and Allied common stock as reported on the NYSE on
June 12, 2008, the last trading day before the day on which
Republic and Allied confirmed that they were involved in
discussions regarding a possible business combination, on
June 20, 2008, the last trading day prior to the public
announcement of the execution of the merger agreement, and on
October 3, 2008, the last trading day before the Republic
and Allied record date. The table also shows the implied value
of one Allied common share, which was calculated by multiplying
the closing sale price of Republic common stock on those dates
and the exchange ratio of .45. The market prices of Republic and
Allied common stock will fluctuate prior to the time of the
special meetings and the completion of the merger. No assurance
can be given concerning the market prices of Republic common
stock or Allied common stock before the completion of the merger
or the market price of Republic common stock after the
completion of the merger. The exchange ratio is fixed in the
merger agreement. Therefore, the market value of the Republic
common stock that Allied stockholders will be entitled to
receive pursuant to the merger may vary significantly from the
prices shown in the table below.
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Implied Value
|
|
|
|
Republic
|
|
|
Allied
|
|
|
of Allied
|
|
|
|
Common Stock
|
|
|
Common Stock
|
|
|
Common Stock
|
|
|
June 12, 2008
|
|
$
|
33.66
|
|
|
$
|
13.92
|
|
|
$
|
15.15
|
|
June 20, 2008
|
|
|
31.19
|
|
|
|
13.56
|
|
|
|
14.04
|
|
October 3, 2008
|
|
|
28.35
|
|
|
|
11.08
|
|
|
|
12.76
|
|
Republic stockholders should obtain current market quotations
for shares of Republic and Allied common stock in deciding
whether to vote for approval of the issuance of Republic common
stock in accordance with the terms of the merger agreement.
Allied stockholders should obtain current market quotations for
shares of Republic common stock and Allied common stock in
deciding whether to vote for adoption of the merger
agreement.
Pursuant to the merger agreement, Republic is permitted to pay
to holders of its common stock, before the effective time of the
merger, regular quarterly cash dividends. After the effective
time of the merger, Republic and Allied expect that the combined
company will continue to pay quarterly dividends to stockholders
of the combined company at a quarterly dividend rate per share
of $.19. The combined companys payment of dividends in the
future, however, will depend on business conditions, its
financial condition and earnings and other factors, and there
can be no guarantee that dividends will continue to be paid at
the same rate by the combined company. Allied does not currently
pay a dividend on its outstanding shares of common stock.
23
QUESTIONS
AND ANSWERS ABOUT THE MERGER
|
|
|
Q: |
|
What will happen in the transaction? |
|
A: |
|
Republic and Allied are proposing to combine the two companies
in a merger transaction. In the merger, a wholly owned
subsidiary of Republic that was formed for the purpose of the
merger will be merged with and into Allied, with Allied
surviving the merger and becoming a wholly owned subsidiary of
Republic. Immediately following the merger, Republic will
continue to be named Republic Services, Inc. and
will be the parent company of Allied. Allied stockholders will
have their shares of Allied common stock converted into the
right to receive newly issued shares of common stock of
Republic, and Republic stockholders will retain their existing
shares of Republic common stock. Republic and Allied expect that
the shares of Republic common stock issued in connection with
the merger in respect of outstanding Allied common stock will
represent approximately 51.7% of the outstanding common stock of
the combined company immediately after the merger on a diluted
basis. Shares of Republic common stock held by Republic
stockholders immediately prior to the merger will represent
approximately 48.3% of the outstanding common stock of the
combined company immediately after the merger on a diluted basis. |
|
Q: |
|
What will I receive in the merger? |
|
A: |
|
Republic Stockholders. Each share of Republic
common stock held by Republic stockholders immediately before
the merger will continue to represent one share of common stock
of the combined company after the effective time of the merger.
Republic stockholders will receive no consideration in the
merger. |
|
|
|
Allied Stockholders. For each share of Allied
common stock held, Allied stockholders will have the right to
receive .45 shares of Republic common stock. At the
effective time of the merger, each share of Allied common stock
will be cancelled and converted automatically into the right to
receive .45 shares of Republic common stock. Allied
stockholders will be entitled to receive cash for any fractional
shares of Republic common stock that they would otherwise have
received pursuant to the merger. The amount of cash for each
fractional share will be calculated by multiplying the fraction
of a share of Republic common stock to which the Allied
stockholder would have been entitled to receive pursuant to the
merger (after aggregating all shares held) by the closing sale
price of a share of Republic common stock on the first trading
day immediately following the effective time of the merger. |
|
Q: |
|
What will be the corporate governance structure of the
combined company? |
|
A: |
|
Commencing on the effective time of the merger and continuing
until the close of business on the day immediately prior to the
third annual meeting of Republic stockholders held after the
effective time, the Republic board of directors will consist of
eleven members, including (1) Republics Chief
Executive Officer and Chairman of the Board, who at the
effective time will continue to be Mr. James E.
OConnor, (2) five directors who are either current
independent members of the Republic board of directors or
individuals nominated by such independent members, and
(3) five directors who are either current independent
members of the Allied board of directors or individuals
nominated by such independent members. The continuing Republic
directors will hold a majority on each of the audit, nominating
and corporate governance, and compensation committees of the
combined company and the current Republic chairman on each of
the committees will initially continue in that role in the
combined company. |
|
|
|
The corporate governance structure will be accomplished through
amendments to the Republic bylaws. Those amendments are further
discussed in The Merger Agreement New Republic
Governance Structure After the Merger beginning on
page 108. |
24
|
|
|
Q: |
|
When and where are the Republic and Allied special
meetings? |
|
|
|
A: |
|
Republic Special Meeting. A special meeting of
Republic stockholders, which is referred to as the Republic
special meeting, will be held on November 14, 2008 at
1:30 p.m., Eastern time, in the Atrium on the 7th Floor of
the AutoNation Building, 110 S.E. 6th Street, Fort Lauderdale,
Florida 33301, to consider and vote on the proposals related to
the merger. |
|
|
|
|
|
Allied Special Meeting. A special meeting of
Allied stockholders, which is referred to as the Allied special
meeting, will be held on November 14, 2008 at
11:30 a.m., Mountain time, at the Marriott at McDowell
Mountains, 16770 North Perimeter Drive, Scottsdale, Arizona
85260 to consider and vote on the proposals related to the
merger. |
|
|
|
Q: |
|
What are the quorum requirements for the Republic and Allied
special meetings? |
|
A: |
|
Under Delaware law and the Republic and Allied bylaws, a quorum
of each companys stockholders at their respective special
meeting is necessary to transact business. The presence of
holders representing a majority of the votes of all outstanding
common stock entitled to vote at each special meeting will
constitute a quorum for the transaction of business at each
special meeting. |
|
Q: |
|
Why is my vote important? |
|
A: |
|
In order to complete the merger, Republic stockholders must
approve of the Republic share issuance and Allied stockholders
must vote to adopt the merger agreement. |
|
Q: |
|
What votes of Republic stockholders are required to complete
the merger? |
|
A: |
|
In order to complete the merger, Republic stockholders must
approve the issuance of Republic common stock and other
securities convertible into or exercisable for shares of
Republic common stock in connection with the merger, which is
referred to as the Republic share issuance, under each of
(1) the rules of the NYSE and (2) the Republic bylaws,
as follows: |
|
|
|
(1) under the NYSE rules, the Republic share issuance
requires the affirmative vote of holders of shares of Republic
common stock representing a majority of votes cast on the
proposal, provided that the total number of votes cast on the
proposal represents a majority of the total number of shares of
Republic common stock issued and outstanding on the record date
for the Republic special meeting; and
|
|
|
|
(2) under the Republic bylaws, the Republic share issuance
requires the affirmative vote of holders of shares of Republic
common stock representing a majority of the total number of
shares of Republic common stock present, in person or by proxy
at the special meeting, and entitled to vote on the proposal.
|
|
|
|
These approvals, together, are referred to as the Republic
stockholder approval. |
|
|
|
If you are a Republic stockholder, any of your shares as to
which you abstain will have the same effect as a vote
AGAINST the Republic share issuance. Under
the NYSE rules, any of your shares that are not voted on the
Republic share issuance will not be counted to determine if
holders representing a majority of the issued and outstanding
shares of Republic common stock have cast a vote on that
proposal, making the requirement that votes cast represent a
majority of the total issued and outstanding shares of Republic
common stock more difficult to meet. |
|
|
|
The Republic board of directors recommends that Republic
stockholders vote FOR the Republic share issuance in
connection with the merger. |
|
Q: |
|
What votes of Allied stockholders are required to complete
the merger? |
25
|
|
|
A: |
|
Allied stockholders are being asked to adopt the merger
agreement, which requires the approval of holders of a majority
of the total number of shares of Allied common stock issued and
outstanding on the record date for the Allied special meeting,
which is referred to as the Allied stockholder approval. |
|
|
|
If you are an Allied stockholder, any of your shares as to which
you abstain or which are not voted will have the same effect as
a vote AGAINST the proposal to adopt the
merger agreement. |
|
|
|
The Allied board of directors recommends that Allied
stockholders vote FOR the adoption of the merger
agreement. |
|
Q: |
|
What do I do if I want to change my vote? |
|
A: |
|
You can change your vote at any time before your proxy is voted
at your companys special meeting. You can do this in one
of four ways: |
|
|
|
you can send a signed notice of revocation of proxy;
|
|
|
|
you can grant a new, valid proxy bearing a later
date;
|
|
|
|
you can submit a proxy again by telephone or through
the Internet; or
|
|
|
|
if you are a holder of record, you can attend the
applicable special meeting and vote in person, but your
attendance alone will not revoke any proxy that you have
previously given.
|
|
|
|
If you choose either of the first two methods, you must send
your notice of revocation or your new proxy to your
companys Corporate Secretary at the address under
The Companies beginning on page 105 so that it
is received no later than the beginning of the applicable
special meeting. If you are a Republic stockholder, you can find
further details on how to revoke your proxy in The
Republic Special Meeting Revocation of Proxies
beginning on page 125. If you are an Allied stockholder,
you can find further details on how to revoke your proxy in
The Allied Special Meeting Revocation of
Proxies beginning on page 129. |
|
Q: |
|
If my shares are held in street name by my
broker, will my broker vote my shares for me? |
|
A: |
|
No. Your broker is not permitted to decide how your shares
should be voted on either the Republic proposal or the Allied
proposal necessary to approve the merger. Your broker will only
vote your shares on a proposal if you provide your broker with
voting instructions on that proposal. You should instruct your
broker to vote your shares by following the directions that your
broker provides you. Please review the voting information form
used by your broker to see if you can submit your voting
instructions by telephone or Internet. |
|
|
|
A broker non-vote occurs when a beneficial owner fails to
provide voting instructions to his or her broker as to how to
vote the shares held by the broker in street name and the broker
does not have discretionary authority to vote without
instructions. See The Republic Special Meeting
beginning on page 123 and The Allied Special
Meeting beginning on page 127. |
|
Q: |
|
What if I fail to instruct my broker with respect to those
items that are necessary to consummate the merger? |
|
A: |
|
If you are a Republic stockholder, |
|
|
|
under the NYSE rules, a broker non-vote will not be
considered a vote cast on the Republic share issuance and will
not be counted to determine if holders of a majority of the
issued and outstanding shares of Republic common stock have cast
a vote on the Republic share issuance, making it more difficult
to achieve the necessary number of votes cast on that proposal;
and
|
|
|
|
under the Republic bylaws, a broker non-vote will
have no effect on the proposal to approve the Republic share
issuance.
|
26
|
|
|
|
|
If you are an Allied stockholder, |
|
|
|
a broker non-vote will have the same effect as a
vote AGAINST the proposal to adopt the merger
agreement, but will be counted towards a quorum at the Allied
special meeting.
|
|
|
|
For additional information, see The Republic Special
Meeting Votes Required to Approve Republic
Proposals beginning on page 124 if you are a Republic
stockholder, and The Allied Special Meeting
Votes Required to Approve Allied Proposals beginning on
page 128 if you are an Allied stockholder. |
|
Q: |
|
What do I do now? |
|
A: |
|
Carefully read and consider the information contained in and
incorporated by reference into this joint proxy
statement/prospectus, including its annexes. |
|
|
|
In order for your shares to be represented at your
companys special meeting: |
|
|
|
you can submit a proxy by telephone or through the
Internet by following the instructions included on your proxy
card;
|
|
|
|
you can indicate on the enclosed proxy card how you
would like to vote and sign and return the proxy card in the
accompanying pre-addressed postage paid envelope; or
|
|
|
|
you can attend your companys special meeting
in person and vote at the meeting.
|
|
Q: |
|
Should I send in my stock certificates now? |
|
A: |
|
No. Allied stockholders should not send in their stock
certificates at this time. Promptly after the effective time,
Republic or Republics exchange agent will send former
Allied stockholders a letter of transmittal and instructions
explaining what they must do to exchange their Allied stock
certificates or transfer uncertificated shares for the merger
consideration payable to them. |
|
|
|
Republic stockholders will retain their current stock
certificates after the merger and should not send in their stock
certificates. |
|
Q: |
|
Can I require an appraisal of my shares? |
|
A: |
|
No. Under Delaware law, Republic and Allied stockholders
have no right to an appraisal of the fair value of their shares
in connection with the merger. |
|
Q: |
|
Are there risks involved in undertaking the merger? |
|
A: |
|
Yes. In evaluating the merger, Republic and Allied stockholders
should carefully consider the factors discussed in Risk
Factors beginning on page 29 and other information
about Republic and Allied included in the documents incorporated
by reference into this joint proxy statement/prospectus. |
|
Q: |
|
When do you expect to complete the merger? |
|
A: |
|
Republic and Allied are working to complete the merger as
quickly as practicable. However, Republic and Allied cannot
assure you when or if the merger will be completed. Completion
of the merger is subject to satisfaction or waiver of the
conditions specified in the merger agreement, including receipt
of the necessary approvals of Republics and Allieds
stockholders at their respective special meetings and any
necessary regulatory approvals. It is possible that factors
outside the control of both companies could result in the merger
being completed later than expected. Although the exact timing
of the completion of the merger cannot be predicted with
certainty, Republic and Allied anticipate completing the merger
by the end of the fourth quarter of 2008. If the merger is not
completed on or before May 15, 2009, the merger agreement
may be terminated by Republic or Allied, unless Republic and
Allied mutually agree to extend the term. See The Merger
Agreement Conditions to Completion of the
Merger beginning on page 119. |
|
Q: |
|
What happens if the Allied board of directors has changed its
recommendation regarding the merger with Republic prior to the
Allied special meeting? |
|
A: |
|
If the Allied board of directors changes its recommendation
regarding the merger, Republic has the right to
(i) terminate the merger agreement, in which case the
special meeting will not be held, or (ii) exercise |
27
|
|
|
|
|
its option to require the Allied special meeting to be held, in
which case the Allied stockholders will be asked to vote on the
merger with Republic notwithstanding the change in
recommendation by the Allied board of directors. |
|
Q: |
|
What happens if the Republic board of directors has changed
its recommendation regarding the proposal to approve the share
issuance in connection with the merger prior to the Republic
special meeting? |
|
A: |
|
If the Republic board of directors changes its recommendation on
the proposal, Allied has the right to (i) terminate the
merger agreement, in which case the special meeting will not be
held, or (ii) exercise its option to require the Republic
special meeting to be held, in which case the Republic
stockholders will be asked to vote on the Republic share
issuance notwithstanding the change in recommendation by the
Republic board of directors. |
|
Q: |
|
Whom should I call with questions? |
|
A: |
|
Republic Stockholders. If you have additional
questions about the merger, you should contact: |
|
|
|
Republic Services, Inc.
110 S.E.
6th
Street,
28th
Floor
Fort Lauderdale, Florida 33301
Attention: Investor Relations
Phone Number:
(954) 769-2400
E-mail
Address: investorrelations@repsrv.com |
|
|
|
If you would like additional copies of this joint proxy
statement/prospectus, or if you have questions about the merger
or need assistance voting your shares, you should contact: |
|
|
|
Mackenzie Partners, Inc.
105 Madison Avenue,
14th
Floor
New York, New York 10016
Phone Number: (800) 322-2885 |
|
|
|
Allied Stockholders. If you have additional
questions about the merger, you should contact: |
|
|
|
Allied Waste Industries, Inc.
18500 North Allied Way
Phoenix, Arizona 85054
Attention: Investor Relations
Phone Number: (480) 627-2700
E-mail
Address: investor.relations@awin.com |
|
|
|
If you would like additional copies of this joint proxy
statement/prospectus, have questions about the merger or need
assistance voting your shares, you should contact: |
|
|
|
Georgeson
199 Water Street,
26th
Floor
New York, New York 10038
Phone Number: (888) 549-6627 |
28
RISK
FACTORS
In addition to the other information included and
incorporated by reference into this joint proxy
statement/prospectus, including the matters addressed in
Cautionary Statement Regarding Forward-Looking
Statements below, you should carefully consider the
following risk factors before deciding whether to vote for the
Republic share issuance, in the case of Republic stockholders,
or for adoption of the merger agreement, in the case of Allied
stockholders. In addition to the risk factors set forth below,
you should read and consider other risk factors specific to each
of the Republic and Allied businesses that will also affect the
combined company after the merger, which are described in
Part I, Item 1A of each companys Annual Report
on
Form 10-K
for the year ended December 31, 2007, each of which has
been filed by Republic or Allied, as applicable, with the SEC
and all of which are incorporated by reference into this joint
proxy statement/prospectus. If any of the risks described below
or in the periodic reports incorporated by reference into this
joint proxy statement/prospectus actually occurs, the
businesses, financial condition, results of operations,
prospects or stock prices of Republic, Allied or the combined
company could be materially adversely affected. See Where
You Can Find More Information, beginning on
page 158.
Risks
Related to the Merger
The
exchange ratio is fixed and will not be adjusted. The market
price of shares of Republic common stock may fluctuate, and
Allied stockholders cannot be sure of the market value of the
shares of Republic common stock that will be issued pursuant to
the merger.
Upon completion of the merger, each share of Allied common stock
outstanding immediately prior to the merger will be converted
into the right to receive .45 shares of Republic common
stock, with cash being paid in lieu of any fractional shares.
The exchange ratio is fixed at .45 shares of Republic
common stock for each share of Allied common stock, and will not
be adjusted to reflect any increases or decreases in the price
of Republic common stock or Allied common stock. The value a
stockholder receives pursuant to the merger in respect of the
stockholders Allied common stock will depend upon the
market price of a share of Republic common stock upon the
completion of the merger. If the price of Republic common stock
declines, Allied stockholders will receive less value for their
shares upon completion of the merger than the value calculated
pursuant to the exchange ratio on the date immediately prior to
the date on which the parties confirmed that they were engaged
in merger discussions, the date immediately prior to the date
the merger agreement was signed or the date of the Allied
special meeting.
Due to the regulatory approval process, the merger may not be
completed until a significant period of time has passed after
the Republic and Allied special meetings, during which time the
market value of Republic common stock and Allied common stock
may fluctuate. Therefore, at the time of their respective
special meetings, Republic and Allied stockholders will not know
the exact market value of Republic common stock that will be
issued in connection with the merger. The market price of a
share of Republic common stock at the time the merger is
completed is likely to be different, and may be lower or higher,
than it was at the time the parties confirmed that they were
engaged in merger discussions, the time the merger agreement was
executed or the time of the special meetings. The closing sale
price of Republic common stock on the NYSE on June 12,
2008, the last trading day before the day on which Republic and
Allied confirmed that they were involved in discussions
regarding a possible business combination, was $33.66 per
share. From June 13, 2008 through the date of this joint
proxy statement/prospectus, the trading price of Republic common
stock ranged from a high of $36.52 per share to a low of $22.58
per share. For Republic and Allied historical market prices, see
Comparative Per Share Market Price and Dividend
Information beginning on page 22.
Stock price changes may result from a variety of factors,
including:
|
|
|
|
|
changes in the business, operations or prospects of Republic or
Allied;
|
|
|
|
catastrophic events, both natural and man-made;
|
|
|
|
government, litigation or regulatory developments or
considerations;
|
29
|
|
|
|
|
general market and economic conditions;
|
|
|
|
market assessments as to whether and when the merger will be
consummated and market assessments of the condition, results or
prospects of either companys business or the combined
companys business;
|
|
|
|
announcements or rumors involving third parties, including Waste
Management, Inc., related to any alternative proposal to acquire
Republic or Allied;
|
|
|
|
arbitrage, short selling and derivative transactions in the
common stock of Republic and Allied by hedge funds and other
market participants;
|
|
|
|
governmental actions or legislative developments affecting the
non-hazardous, solid waste industry generally; and
|
|
|
|
other factors set forth under the headings Risk Factors
Related to the Combined Company if the Merger is Completed.
|
Republic and Allied stockholders are urged to obtain current
market quotations for Republic and Allied common stock when they
consider whether to approve the proposals required to complete
the merger at the respective special meetings.
The
fairness opinions obtained by Republic and Allied from their
respective financial advisors will not reflect changes in
circumstances between the signing of the merger agreement and
the completion of the merger.
Neither Republic nor Allied has obtained an updated fairness
opinion as of the date of this joint proxy statement/prospectus
from Merrill Lynch, Republics financial advisor, or UBS,
Allieds financial advisor. Changes in the operations and
prospects of Republic or Allied, general market and economic
conditions, and other factors that may be beyond the control of
Republic and Allied, and on which the fairness opinions were
based, may alter the value of Republic or Allied or the prices
of shares of Allied common stock or Republic common stock by the
time the merger is completed. The opinions do not speak as of
the time the merger will be completed or as of any date other
than the dates of such written opinions. Because neither
Republic nor Allied anticipates asking its respective financial
advisor to update its opinion, the written opinions dated
June 22, 2008 do not address the fairness of the exchange
ratio, from a financial point of view, at the time the merger is
completed. The opinions are included as Annex C and D to
this joint proxy statement/prospectus. For a description of the
opinion that Republic received from its financial advisor and a
summary of the material financial analyses provided to the
Republic board of directors in connection with rendering such
opinion, see Opinion of Financial Advisor to the Republic
Board of Directors beginning on page 64. For a
description of the opinion that Allied received from its
financial advisor and a summary of the material financial
analyses provided to the Allied board of directors in connection
with rendering such opinion, see Opinion of Financial
Advisor to the Allied Board of Directors beginning on
page 78. For a description of the other factors considered
by the Republic board of directors in determining to approve the
merger, see Republic Reasons for the Merger
beginning on page 59. For a description of the other
factors considered by the Allied board of directors in
determining to approve the merger, see Allied Reasons for
the Merger beginning on page 73.
The
merger is subject to the receipt of consents, approvals and
non-objections
from anti-trust regulators, which may impose conditions on,
jeopardize or delay completion of the merger, result in
additional expenditures of money and resources, reduce the
anticipated benefits of the merger or cause the failure of the
completion of the merger.
Completion of the merger is conditioned upon filings with, and
the receipt of required consents, orders, approvals,
non-objections or clearances from, the Antitrust Division of the
U.S. Department of Justice under the HSR Act. Republic and
Allied intend to pursue these consents, orders, approvals,
non-objections and clearances in accordance with the merger
agreement. There can be no assurance, however, that these
consents,
30
orders, approvals, non-objections and clearances will be
obtained or, if they are obtained, that they will not impose
conditions on, or require divestitures relating to, the
divisions, operations or assets of Republic or Allied. These
conditions or divestitures may jeopardize or delay completion of
the merger, result in additional expenditures of money and
resources, or reduce the anticipated benefits of the merger. The
merger agreement requires Republic and Allied to satisfy any
conditions or divestiture requirements imposed upon them unless
the conditions or divestitures individually or in the aggregate
would reasonably be expected to have a material adverse effect
after the effective time of the merger on the assets and
liabilities, financial condition or business of Republic and its
subsidiaries (including the combined company and its
subsidiaries), taken as a whole, or the benefits expected to be
derived by the parties on the date of the merger agreement from
the combination of Republic and Allied via the merger (such
combined business to be taken as a whole) in such a manner that
such party would not have entered into the merger agreement in
the face of such materially and adversely affected benefits. See
The Merger Agreement Conditions to Completion
of the Merger beginning on page 119 for a discussion
of the conditions to the completion of the merger and
Regulatory Matters beginning on page 96 for a
description of the regulatory approvals necessary in connection
with the merger.
There
can be no assurance that the merger will be consummated. The
announcement and pendency of the merger, or the failure of the
merger to be consummated, could have an adverse effect on
Republics or Allieds stock price, business,
financial condition, results of operations or
prospects.
The merger is subject to a number of conditions to closing,
including (i) the approval of the issuance of shares of
Republic common stock in accordance with the terms of the merger
agreement, (ii) the adoption of the merger agreement by the
Allied stockholders, (iii) the expiration or termination of
the waiting period (and any extension thereof) or the resolution
of any litigation instituted applicable to the merger under the
HSR Act or any other applicable federal or state statue or
regulation, (iv) no temporary restraining order,
preliminary or permanent injunction or other order shall have
been issued (and remain in effect) by a court or other
governmental entity having the effect of making the merger
illegal or otherwise prohibiting the consummation of the merger,
(v) the approval for listing on the NYSE of the shares of
Republic common stock issuable in connection with the merger,
and (vi) receipt by Republic of written confirmation from
the applicable credit ratings agencies of the senior unsecured
debt rating of Republic (including certain subsidiaries of
Allied who are issuers of debt and will become subsidiaries of
Republic at the effective time) upon the consummation of the
merger. See The Merger Agreement Conditions to
Completion of the Merger, beginning on page 119.
If the stockholders of Republic fail to approve the Republic
share issuance or if Allied stockholders fail to adopt the
merger agreement, Republic and Allied will not be able to
complete the merger. Additionally, if the other closing
conditions are not met or waived, the companies will not be able
to complete the merger. In addition, on July 14, 2008 and
August 11, 2008, Waste Management, Inc. made unsolicited
proposals to acquire Republic. While Republic refused to enter
into discussions with Waste because neither proposal constituted
a superior proposal, and could not reasonably be expected to
lead to a superior proposal, there can be no assurance that
Waste will not make a further proposal or that any such proposal
will not result in the termination of the merger agreement. As a
result, there can be no assurance that the merger will be
completed in a timely manner or at all.
Further, the announcement and pendency of the merger could
disrupt Republics and Allieds businesses, in any of
the following ways, among others:
|
|
|
|
|
Republic and Allied employees may experience uncertainty about
their future roles with the combined company, which might
adversely affect Allieds and Republics ability to
retain and hire key managers and other employees;
|
|
|
|
the attention of management of each of Republic and Allied may
be directed toward the completion of the merger and
transaction-related considerations and may be diverted from the
day-to-day business operations of their respective
companies; and
|
|
|
|
customers, suppliers or others may seek to modify or terminate
their business relationships with Republic or Allied.
|
31
Republic and Allied may face additional challenges in competing
for new business and retaining or renewing business. These
disruptions could be exacerbated by a delay in the completion of
the merger or termination of the merger agreement.
For the foregoing reasons, there can be no assurance that the
announcement and pendency of the merger, or the failure of the
merger to be consummated, will not have an adverse effect on
Republics or Allieds stock price, business,
financial condition, results of operations or prospectus.
There
can be no assurance that the combined company will obtain
investment grade credit ratings at the closing of the merger,
which could impact the results of operations of the combined
company after the merger.
Under the merger agreement, Republic is not required to
consummate the merger unless, upon consummation of the merger,
the senior unsecured debt rating of Republic (including certain
subsidiaries of Allied who are issuers of debt and will become
subsidiaries of Republic at the effective time) is at least
investment grade from one of Standard & Poors
and Moodys (and no lower than one level below investment
grade from the other rating agency). See The Merger
Agreement Conditions to Completion of the
Merger, beginning on page 119. There can be no
assurance that this condition to the closing of the merger will
be satisfied. The parties anticipate that Republics senior
unsecured debt rating upon consummation of the merger will be
investment grade (although lower than Republics senior
unsecured debt rating prior to announcement of the merger).
Republic could, however, waive the condition to closing of the
merger that Republics rating be at least investment grade
from one of Standard & Poors and Moodys
(and no lower than one level below investment grade from the
other rating agency). If Republic closes the merger without an
investment grade credit rating, then the combined company could
have increased interest expenses and more burdensome covenants
in its financing agreements. That could adversely impact the
growth prospects and the results of operations of the combined
company.
There
can be no assurance that Republic will be able to satisfy all
conditions necessary in order to borrow under the debt financing
contemplated in connection with the merger.
Completion of the merger is not conditioned on receipt of any
financing. Republic has agreed to use its best efforts to
arrange financing sufficient to refinance or amend the terms of
Allieds existing senior secured credit facility, which
includes a revolving credit facility, a term loan facility, an
institutional letter of credit facility and an incremental
revolving letter of credit facility. Republic intends to
accomplish the refinancing through a combination of a new
$1.75 billion senior revolving credit facility and
Republics existing $1.0 billion senior revolving
credit facility. Republic has entered into the new facility and
has also entered into an amendment to its existing facility that
is necessary to permit the merger, but there can be no assurance
that Republic will be able to satisfy all the conditions
necessary to borrow funds under the new facility and the
existing facility in order to complete the merger. If such
conditions are not satisfied, then alternative financing
obtained in lieu of the financings contemplated by the existing
commitments may have higher interest rates than Republic or
Allied currently anticipate, which could increase the combined
companys interest expense, and may contain more burdensome
covenants than Republics current debt instruments.
The
merger agreement limits Republics and Allieds
ability to pursue an alternative acquisition proposal and
requires Republic or Allied to pay a termination fee of
$200 million, plus expenses, if it does.
The merger agreement prohibits Republic and Allied from
soliciting, initiating or encouraging alternative merger or
acquisition proposals with any third party. The merger agreement
also provides for the payment by either of Republic or Allied to
the other of a termination fee of $200 million, plus up to
$50 million in expenses, if the merger agreement is
terminated in certain circumstances in connection with a
competing acquisition proposal for that company or the
withdrawal by the board of directors of that company of its
recommendation that the stockholders of that company vote in
favor of the proposals required to consummate the merger, as the
case may be. See The Merger Agreement
Termination Fees, beginning on page 121.
32
There
may be a long delay between Republic and Allied each receiving
the necessary stockholder approvals for the merger and the
closing of the transaction, during which time both companies
will lose the ability to consider and pursue alternative
acquisition proposals, which might otherwise be superior to the
merger.
Following their respective stockholder approvals, the merger
agreement prohibits both Republic and Allied from taking any
actions to review, consider or recommend any alternative
acquisition proposals, including those that could be superior to
Republics or Allieds stockholders, respectively,
when compared to the merger. Given the potentially long delay
between stockholder approval and antitrust clearance, the time
during which both companies could be prevented from reviewing,
considering or recommending such proposals could be significant.
Certain
directors and executive officers of Republic and Allied may have
interests that may be different from, or in addition to,
interests of Republic and Allied stockholders
generally.
Some of the directors of Republic and Allied who recommend that
Republic and Allied stockholders vote in favor of adopting the
merger agreement, and the executive officers of Republic and
Allied who provided information to the Republic and Allied board
of directors relating to the merger, have employment,
indemnification and severance benefit arrangements, rights to
acceleration of equity-based awards and other benefits on a
change in control of Republic and Allied, and rights to ongoing
indemnification and insurance that may provide them with
interests in the merger. The receipt of compensation or other
benefits, including the rights to acceleration of equity-based
awards by Republics or Allieds executive officers in
connection with the merger, may make it more difficult for the
combined company to retain their services after the merger, or
require the combined company to expend additional sums to
continue to retain their services. Stockholders of both
companies should be aware of these interests when considering
the Republic and Allied board of directors recommendations
that they vote in favor of the adoption of the merger agreement,
or the Republic share issuance, as the case may be. See
The Merger Interests of Republic Executive
Officers and Directors in the Merger beginning on
page 70. See The Merger Interests of
Allied Executive Officers and Directors in the Merger
beginning on page 85.
Estimates
as to the future value of the combined company are inherently
uncertain. You should not rely on such estimates without
considering all of the information contained in this joint proxy
statement/prospectus.
Any estimates as to the future value of the combined company,
including estimates regarding the price at which the common
stock of the combined company will trade following the merger,
are inherently uncertain. The future value of the combined
company will depend upon, among other factors, the combined
companys ability to achieve projected revenue and earnings
expectations and to realize the anticipated synergies described
in this joint proxy statement/prospectus, all of which are
subject to the risks and uncertainties described in this joint
proxy statement/prospectus, including these risk factors.
Accordingly, you should not rely upon any estimates as to the
future value of the combined company, or the price at which the
common stock of the combined company will trade following the
merger, whether made before or after the date of this joint
proxy statement/prospectus by Republics or Allieds
respective management or affliliates or others, without
considering all of the information contained in this joint proxy
statement/prospectus.
Risks
Related to the Combined Company if the Merger is
Completed
Republic
and Allied may experience difficulties integrating their
businesses.
Currently, each company operates as an independent public
company. Achieving the anticipated benefits of the merger will
depend in significant part upon whether the two companies
integrate their businesses in an efficient and effective manner.
Due to legal restrictions, Republic and Allied have been able to
conduct only limited planning regarding the integration of the
two companies following the merger and have not yet determined
the exact nature of how the businesses and operations of the two
companies will be combined after the merger. The actual
integration may result in additional and unforeseen expenses,
and the anticipated benefits of the integration plan may not be
realized. The companies may not be able to accomplish the
integration process smoothly, successfully or on a timely basis.
The necessity of coordinating geographically
33
separated organizations, systems of controls, and facilities and
addressing possible differences in business backgrounds,
corporate cultures and management philosophies may increase the
difficulties of integration. The companies operate numerous
systems and controls, including those involving management
information, purchasing, accounting and finance, sales, billing,
employee benefits, payroll and regulatory compliance. The
integration of operations following the merger will require the
dedication of significant management and external resources,
which may temporarily distract managements attention from
the day-to-day business of the combined company and be costly.
Employee uncertainty and lack of focus during the integration
process may also disrupt the business of the combined company.
Any inability of management to successfully and timely integrate
the operations of the two companies could have a material
adverse effect on the business and results of operations of the
combined company.
The
combined company may not fully realize the anticipated synergies
and related benefits of the merger or within the timing
anticipated.
Republic and Allied entered into the merger agreement because
each company believes that the merger will be beneficial to each
of Republic, Allied and their respective stockholders primarily
as a result of the anticipated synergies resulting from the
combined companys operations. The companies may not be
able to achieve the anticipated operating and cost synergies or
long-term strategic benefits of the merger within the timing
anticipated. For example, elimination of duplicative costs may
not be fully achieved or may take longer than anticipated. For
at least the first year after the merger, and possibly longer,
the benefits from the merger will be offset by the costs
incurred in integrating the businesses and operations, or
adverse conditions imposed by regulatory authorities on the
combined business in connection with granting approval for the
merger. An inability to realize the full extent of, or any of,
the anticipated synergies or other benefits of the merger, as
well as any delays that may be encountered in the integration
process, which may delay the timing of such synergies or other
benefits, could have an adverse effect on the business and
results of operations of the combined company, and may affect
the value of the shares of Republic common stock after the
completion of the merger.
The
merger may not be accretive in the anticipated time, or at all,
and may cause dilution to the combined companys earnings
per share, which may harm the market price of Republic common
stock after the merger.
The parties currently anticipate that the merger will be
accretive to earnings per share within the first full calendar
year after the merger is complete. However, Republic and Allied
have been able to conduct only limited planning regarding the
integration of the two companies. Accordingly, this expectation
is based on preliminary estimates which may materially change
after the completion of the merger. The combined company could
also encounter additional transaction and integration-related
costs or other factors such as the failure to realize all of the
benefits anticipated in the merger or a downturn in its
business. All of these factors could cause dilution to the
combined companys earnings per share or decrease the
expected accretive effect of the merger and cause a decrease in
the price of Republic common stock after the merger.
The
price of the common stock of the combined company may be
affected by factors different from those affecting the price of
Republic common stock or Allied common stock
independently.
After completion of the merger, as the combined company
integrates the businesses of Republic and Allied, the results of
operations as well as the stock price of the combined company
may be affected by factors different than those factors
affecting Republic and Allied as independent stand-alone
entities. The combined company may face additional risks and
uncertainties not otherwise facing each independent company
prior to the merger. For a discussion of Republics and
Allieds businesses and certain factors to consider in
connection with their respective businesses, see the respective
sections entitled Managements Discussion and
Analysis of Financial Condition and Results of Operations
in each of Republics and Allieds annual reports on
Form 10-K
for the year ended December 31, 2007 and quarterly reports
on
Form 10-Q
for
34
the period ended June 30, 2008 and other documents
incorporated by reference into this joint proxy
statement/prospectus.
Charges
to earnings resulting from the application of the acquisition
method of accounting may adversely affect the market value of
Republic common stock following the merger.
In accordance with GAAP, Republic will be considered the
acquiror of Allied for accounting purposes. Republic will
account for the merger using the acquisition method of
accounting. There may be charges related to the acquisition that
are required to be recorded to Republics earnings that
could adversely affect the market value of Republic common stock
following the completion of the merger. Under the acquisition
method of accounting, Republic will allocate the total purchase
price to the assets acquired, including identifiable intangible
assets, and liabilities assumed from Allied based on their fair
values as of the date of the completion of the merger, and
record any excess of the purchase price over those fair values
as goodwill. For certain tangible and intangible assets,
revaluating them to their fair values as of the completion date
of the merger may result in Republics incurring additional
depreciation and amortization expense that may exceed the
combined amounts recorded by Republic and Allied prior to the
merger. This increased expense will be recorded by Republic over
the useful lives of the underlying assets. In addition, to the
extent the value of goodwill or intangible assets were to become
impaired after the merger, Republic may be required to incur
charges relating to the impairment of those assets.
If the
merger is consummated subsequent to December 31, 2008, all
transaction and restructuring costs will need to be
expensed.
The preliminary purchase price allocation made in connection
with the preparation of the pro forma financial statements
included in this joint proxy statement/prospectus assumes the
merger is consummated in 2008, and that it will be accounted for
under Statement of Financial Accounting Standards No. 141,
Business Combinations. Management believes the
merger will be consummated in the fourth quarter of 2008. If the
merger is consummated subsequent to December 31, 2008, it
will be accounted for under Statement of Financial Accounting
Standards No. 141 (revised 2007), Business
Combinations (SFAS 141(R)), which is effective
for Republic on January 1, 2009. SFAS 141(R) changes
the methodologies for calculating purchase price and for
determining fair values. It also requires that all transaction
and restructuring costs related to business combinations be
expensed as incurred, which will reduce earnings, and it
requires that changes in deferred tax asset valuation allowances
and liabilities for tax uncertainties subsequent to the
acquisition date that do not meet certain remeasurement criteria
be recorded in the income statement as well. The consolidated
balance sheet and results of operations of the combined company
would be materially different if the merger of Republic and
Allied were accounted for under SFAS 141(R).
The
combined company will incur significant transaction- and
integration-related costs in connection with the
merger.
Republic and Allied expect to incur non-recurring costs
associated with combining the operations of the two companies,
including charges and payments to be made to some of their
employees pursuant to change in control contractual
obligations. Republic expects that the amount of these costs
will be determined as of the effective time of the merger and
may be material to the financial position and results of
operations of the combined company. The substantial majority of
non-recurring expenses resulting from the merger will be
comprised of transaction costs related to the merger, facilities
and systems consolidation costs, and employee-related costs.
Republic and Allied will also incur fees and costs related to
formulating integration plans and performing these activities.
Additional unanticipated costs may be incurred in the
integration of the two companies businesses. The
elimination of duplicative costs, as well as the realization of
other efficiencies related to the integration of the businesses,
may not offset incremental transaction- and other
integration-related costs in the near term.
35
The
combined company will have substantial indebtedness following
the merger, which may limit its financial
flexibility.
Following the completion of the merger, the combined company is
expected to have approximately $8.4 billion in total debt
outstanding and a higher debt to capital ratio than that of
Republic on a stand-alone basis. This amount of indebtedness may
limit the combined companys flexibility as a result of its
debt service requirements, and may limit the combined
companys ability to access additional capital and make
capital expenditures and other investments in its business, to
withstand economic downturns and interest rate increases, to
plan for or react to changes in its business and its industry,
and to comply with financial and other restrictive covenants in
its indebtedness.
Further, the combined companys ability to comply with the
financial and other covenants contained in its debt instruments
may be affected by changes in economic or business conditions or
other events beyond its control. If the combined company does
not comply with these covenants and restrictions, it may be
required to take actions such as reducing or delaying capital
expenditures, reducing dividends, selling assets, restructuring
or refinancing all or part of its existing debt, or seeking
additional equity capital.
The
waste industry is highly competitive and includes competitors
that may have greater financial and operational resources,
flexibility to reduce prices and other competitive advantages
that could make it difficult for the combined company to compete
effectively.
The combined company will compete with large national waste
management companies, municipalities and numerous regional and
local companies for collection and disposal accounts. The
competition will primarily be on the basis of price and the
quality of services. Some of these competitors may have greater
financial and operational resources than the combined company.
Many counties and municipalities that operate their own waste
collection and disposal facilities may have the benefits of tax
revenues or tax-exempt financing. The combined companys
ability to obtain solid waste volume for its landfills may also
be limited by the fact that some major collection companies also
own or operate landfills to which they send their waste. In
markets in which the combined company does not own or operate a
landfill, its collection operations may operate at a
disadvantage to fully integrated competitors. As a result of
these factors, the combined company may have difficulty
competing effectively from time to time or in certain markets.
If the combined company were to lower prices to address these
competitive issues, it could negatively impact its revenue
growth and profitability.
Price
increases may not be adequate to offset the impact of increased
costs or may cause the combined company to lose
volume.
The combined company will compete for collection accounts
primarily on the basis of price and the quality of services. In
addition, the combined company will seek to secure price
increases necessary to offset increased costs (including fuel
costs), to improve operating margins and to obtain adequate
returns on its substantial investments in assets such as its
landfills. From time to time, the combined companys
competitors may reduce the prices for their services in an
effort to expand their market share. Contractual, general
economic or market-specific conditions may also limit the
combined companys ability to raise prices. As a result of
these factors, the combined company may be unable to offset
increases in costs, improve operating margins and obtain
adequate investment returns through price increases. The
combined company may also lose volume to lower-cost competitors.
Increases
in the cost of fuel or oil will increase operating expenses of
the combined company and there can be no assurance that the
combined company will be able to recover fuel or oil cost
increases from its customers.
Republics and Allieds operations are dependent on
fuel to run their respective collection and transfer trucks and
equipment. The combined company will buy fuel in the open
market. Fuel prices are unpredictable and can fluctuate
significantly based on events beyond the combined companys
control, including geopolitical
36
developments, actions by the Organization of the Petroleum
Exporting Countries and other oil and gas producers, supply and
demand for oil and gas, war, terrorism and unrest in
oil-producing countries, and regional production patterns. The
combined company may not be able to offset such volatility
through fuel surcharges. For example, Republics and
Allieds fuel costs were $192.0 million and
$308.7 million in 2007, respectively, representing 9.6% and
8.2% of costs of Republics and Allieds operations
compared to $178.1 million and $291.6 million in 2006,
respectively, representing 9.3% and 7.7% of costs of
Republics and Allieds operations. The increases
primarily reflect an increase in the price of fuel.
In addition, regulations affecting the type of fuel used by
Republics and Allieds trucks are changing and could
materially increase the cost and consumption of the combined
companys fuel. Each of Republics and Allieds
operations also require the use of certain petroleum-based
products (such as liners at each companys landfills) whose
costs may vary with the price of oil. An increase in the price
of oil could increase the cost of those products, which would
increase the combined companys operating and capital
costs. Republic and Allied are also susceptible to increases in
indirect fuel surcharges from vendors.
Downturns
in the U.S. economy may have an adverse impact on the combined
companys operating results.
A weak economy generally results in decreases in the volumes of
waste generated. In the past, weakness in the U.S. economy
has had a negative effect on Republics and Allieds
operating results, including decreases in revenues, increases in
costs and decreases in operating cash flows. Previous economic
slowdowns have negatively impacted the portion of each
companys collection business servicing the manufacturing
and construction industries. In the future, in an economic
slowdown, the combined company may experience the negative
effects of increased competitive pricing pressure and customer
turnover as well. There can be no assurance that worsening
economic conditions or a prolonged or recurring recession will
not have a significant adverse impact on the combined
companys operating results or liquidity. Further, there
can be no assurance that an improvement in economic conditions
will result in an immediate, if at all positive, improvement in
the combined companys operating results or cash flows.
Adverse
weather conditions may limit the combined companys
operations and increase the costs of collection and
disposal.
The combined companys collection and landfill operations
could be adversely impacted by extended periods of inclement
weather, which could increase the volume of waste collected
under our existing contracts (without corresponding
compensation), may interfere with collection and landfill
operations, delay the development of landfill capacity or reduce
the volume of waste generated by the combined companys
customers. In addition, weather conditions may result in the
temporary suspension of the combined companys operations,
which could significantly affect the combined companys
operating results in the affected regions during those periods.
The
combined company may be unable to execute its financial
strategy.
The combined companys ability to execute its financial
strategy is dependent in part on its ability to maintain an
investment grade rating on its senior debt. The credit rating
process is contingent upon a number of factors, many of which
are beyond the combined companys control. Even if the
combined company has investment grade credit ratings upon
closing of the merger, it may not be able to maintain investment
grade ratings. The combined companys interest expense
would increase and its ability to obtain financing on favorable
terms may be adversely affected should it fail to maintain
investment grade ratings.
The combined companys financial strategy is also dependent
in part on its ability to generate sufficient cash flow to
reinvest in its existing businesses, fund internal growth,
acquire other solid waste businesses, pay dividends, reduce
indebtedness and minimize borrowings and take other actions to
enhance stockholder value. There can be no assurance that the
combined company will be successful in executing its broad-based
pricing
37
program, that it will generate sufficient cash flow to execute
its financial strategy, that it will be able to pay cash
dividends at the same rate or that it will be able to increase
the amount of such dividends.
The
combined company may be unable to manage its growth
effectively.
The combined companys growth strategy will place
significant demands on its financial, operational and management
resources. In order to continue its growth, the combined company
may need to add administrative and other personnel, and will
need to make additional investments in operations and systems.
There can be no assurance that the combined company will be able
to find and train qualified personnel, or do so on a timely
basis, or expand its operations and systems to the extent, and
in the time, required.
The
combined company may be unable to execute its acquisition growth
strategy.
The combined companys ability to execute its growth
strategy depends in part on its ability to identify and acquire
desirable acquisition candidates as well as its ability to
successfully consolidate acquired operations into its business.
The consolidation of the combined companys operations with
the operations of acquired companies, including the
consolidation of systems, procedures, personnel and facilities,
the relocation of staff, and the achievement of anticipated cost
savings, economies of scale and other business efficiencies,
will present significant challenges to its management,
particularly during the initial phases of integrating the
operations of Allied and Republic. There can be no assurance
that:
|
|
|
|
|
desirable acquisition candidates exist or will be identified,
|
|
|
|
the combined company will be able to acquire any of the
candidates identified,
|
|
|
|
the combined company will effectively consolidate companies
which it acquires and fully or timely realize expected cost
savings, economies of scale or business efficiencies, or
|
|
|
|
any acquisitions will be profitable or accretive to the combined
companys earnings.
|
Additional factors may negatively impact the combined
companys acquisition growth strategy. The combined
companys acquisition strategy may require spending
significant amounts of capital. If the combined company is
unable to obtain additional needed financing on acceptable
terms, it may need to reduce the scope of its acquisition growth
strategy, which could have a material adverse effect on its
growth prospects. The intense competition among companies
pursuing the same acquisition candidates may increase purchase
prices for solid waste businesses and increase the combined
companys capital requirements or prevent the combined
company from acquiring certain acquisition candidates. If any of
the aforementioned factors force management to alter the
combined companys growth strategy, the combined
companys growth prospects could be adversely affected.
Businesses
the combined company acquires may have undisclosed
liabilities.
In pursuing the combined companys acquisition strategy,
the combined companys investigations of the acquisition
candidates may fail to discover certain undisclosed liabilities
of the acquisition candidates. If the combined company acquires
a company having undisclosed liabilities, as a successor owner
it may be responsible for such undisclosed liabilities. The
combined company expects to try to minimize exposure to such
liabilities by obtaining indemnification from each seller of the
acquired companies, by deferring payment of a portion of the
purchase price as security for the indemnification and by
acquiring only specified assets. However, there can be no
assurance that the combined company will be able to obtain
indemnifications or that they will be enforceable, collectible
or sufficient in amount, scope or duration to fully offset any
undisclosed liabilities arising from acquisitions.
38
Allied
currently has matters pending with the Internal Revenue Service
(IRS), which could result in large cash expenditures and could
have an adverse impact on the combined companys operating
results and cash flows.
Allieds federal income tax returns for years 1998 through
2006 are currently under examination by the IRS. The federal
income tax audit for Allieds subsidiary, Browning Ferris
Industries LLCs (f/k/a Browning Ferris Industries, Inc.)
tax years ended September 30, 1996 through July 30,
1999 is complete except for one matter related to a capital loss
deduction. If the capital loss deduction is fully disallowed,
Allied estimates that it would have a total cash impact of
approximately $431 million ($360 million net of tax
benefit) related to federal taxes, state taxes and interest.
Because of the interest rate assessed on this matter, Allied has
previously paid the IRS $224 million ($191 million net
of tax benefit) for tax and interest related to the capital loss
deductions taken on the 1999 income tax returns. Later in 2008,
Allied expects to pay the IRS and state tax authorities
approximately $160 million ($124 million net of tax
benefit) for tax and interest related to capital loss deductions
taken on its 2000 through 2003 income tax returns. These
payments do not represent a settlement with respect to the
potential tax, interest or penalty related to this matter, nor
do they prevent Allied from contesting the IRS tax adjustment
applicable to its 1999 through 2003 taxable years in a federal
refund action. The remaining impact of the capital loss
disallowance, $47 million ($45 million net of tax
benefit), will likely be paid in the normal course of future
audit cycles for the tax years 2004 and beyond. Additionally,
the IRS and state authorities could ultimately impose penalties
and penalty interest for any amount up to approximately
$124 million, net of tax benefit, as of June 30, 2008.
Also, if an outstanding matter from 2002 relating to an exchange
of partnership interests is decided against Allied, it estimates
it could have a potential total cash impact of approximately
$160 million for federal and state taxes, plus accrued
interest through June 30, 2008 of approximately
$43 million ($27 million, net of tax benefit). In
addition, for both matters, the IRS could impose a penalty of up
to 40% of the additional income tax due.
The potential tax and interest (but not penalties or
penalty-related interest) impact of the above matters has been
fully reserved on Allieds consolidated balance sheet. With
regard to tax and accrued interest through June 30, 2008, a
disallowance would not materially affect Allieds
consolidated results of operations; however, a deficiency
payment would adversely impact Allieds cash flow in the
period the payment was made. The accrual of additional interest
charges through the time these matters are resolved will affect
Allied or the combined companys consolidated results of
operations. In addition, the successful assertion by the IRS of
penalties could have a material adverse impact on Allied or the
combined companys consolidated cash flows and results of
operations.
Also, the IRS has proposed that certain landfill costs be
allocated to the collection and control of methane gas that is
naturally produced within the landfill. The IRS position
is that the methane gas produced by a landfill is a joint
product resulting from the operations of the landfill and,
therefore, these costs should not be expensed until the methane
gas is sold or otherwise disposed. Allied believes it has
several meritorious defenses, including the fact that methane
gas is not actively produced for sale by Allied but rather
arises naturally in the context of providing disposal services.
Therefore, Allied believes that the resolution of this issue
will not have a material adverse impact on the combined
companys consolidated liquidity, financial position or
results of operations.
For additional information on these matters, see Note 9,
Income Taxes, to Allieds consolidated financial statements
in Item 8 of Allieds Annual Report on
Form 10-K
for the year ended December 31, 2007, Note 7, Income
Taxes to Allieds Quarterly Report on Form 10-Q for the six
months ended June 30, 2008 and Allieds Current Report
on Form 8-K dated May 5, 2008, in which certain previously
reported financial information was reclassified to reflect the
realignment of their organizational structure during the first
quarter of 2008. Other matters may also arise in the course of
tax audits that could adversely impact the combined
companys consolidated liquidity, financial condition, and
results of operations.
39
Fluctuations
in prices for recycled commodities that the combined company
sells to customers may adversely affect its revenues, operating
income and cash flows.
Republic and Allied process recyclable materials such as paper,
cardboard, plastics, aluminum and other metals for sale to third
parties. The results of operations of the combined company may
be affected by changing prices or market requirements for
recyclable materials. The resale and purchase prices of, and
market demand for, recyclable materials can be volatile due to
numerous factors beyond the combined companys control.
These fluctuations may affect the combined companys future
revenues, operating income and cash flows.
The
combined company may be subject to influences of the workforce,
including work stoppages, which could increase its operating
costs and disrupt its operations.
As of June 30, 2008, approximately 29.25% of
Republics and Allieds combined workforces were
represented by various local labor unions. If, in the future,
the combined companys unionized workers were to engage in
a strike, work stoppage or other slowdown, it could experience a
significant disruption of its operations and an increase in its
operating costs, which could have an adverse impact on its
results of operations and cash flows. In addition, if a greater
percentage of the combined companys workforce becomes
unionized, the combined companys business and financial
results could be materially and adversely impacted due to the
potential for increased operating costs.
The
combined company will be subject to costly environmental
regulations that may affect the combined companys
operating margins, restrict its operations and subject the
combined company to additional liabilities.
The combined companys compliance with laws and regulations
governing the use, treatment, storage, transfer and disposal of
solid and hazardous wastes and materials, air quality, water
quality and the remediation of contamination associated with the
release of hazardous substances will be costly. Laws and
regulations often require Republic and Allied to enhance or
replace their equipment and to modify landfill operations or
initiate final closure of a landfill. There can be no assurance
that the combined company will be able to implement price
increases sufficient to offset the cost of complying with these
laws and regulations. In addition, environmental regulatory
changes could accelerate or increase expenditures for capping,
closure, post-closure and environmental remediation activities
at solid waste facilities and obligate the combined company to
spend sums in addition to those presently accrued for such
purposes.
In the future, the combined companys collection, transfer
and landfill operations may also be affected by proposed federal
and state legislation that may allow individual states to
prohibit the disposal of out-of-state waste or to limit the
amount of out-of-state waste that can be imported for disposal
and may require states, under some circumstances, to reduce the
amount of waste exported to other states. If this or similar
legislation is enacted in states in which the combined company
operates landfills that receive a significant portion of waste
from out-of-state, the combined companys operations could
be negatively affected due to a decline in landfill volumes and
the increased costs of alternate disposal. The United States
Congress could also propose flow control
legislation, which may allow states and local governments to
direct waste generated within their jurisdiction to a specific
facility for disposal or processing. If this or similar
legislation is enacted, state or local governments with
jurisdiction over any of the combined companys landfills
could act to limit or prohibit disposal or processing of waste
in any of the combined companys landfills.
In addition to the costs of complying with environmental
regulations, Republic and Allied incur costs to defend against
litigation brought by government agencies and private parties
who may allege Republic or Allied is in violation of its permits
and applicable environmental laws and regulations, or who assert
claims alleging environmental damage, personal injury or
property damage. As a result, the combined company may be
required to pay fines or implement corrective measures, or may
have its permits and licenses modified or revoked. A significant
judgment against the combined company, the loss of a significant
permit or license or
40
the imposition of a significant fine could have a material
adverse impact on the combined companys consolidated
liquidity, financial condition or results of operations.
The
combined company may be unable to obtain or maintain required
permits or to expand existing permitted capacity of its
landfills, which could decrease its revenues and increase its
costs.
There can be no assurance that the combined company will
successfully obtain or maintain the permits it will require to
operate its business because permits to operate non-hazardous
solid waste landfills and to expand the permitted capacity of
existing landfills have become more difficult and expensive to
obtain. Permits often take years to obtain as a result of
numerous hearings and compliance with zoning, environmental and
other regulatory requirements. These permits are also often
subject to resistance from citizen or other groups and other
political pressures. Local communities and citizen groups,
adjacent landowners or governmental agencies may oppose the
issuance of a permit or approval the combined company may need,
allege violations of the permits under which Republic or Allied
currently operates or laws or regulations to which Republic or
Allied is subject, or seek to impose liability on the combined
company for environmental damage. Responding to these challenges
has, at times, increased Republics and Allieds costs
and extended the time associated with establishing new
facilities and expanding existing facilities. In addition,
failure to receive regulatory and zoning approval may prohibit
the combined company from establishing new facilities,
maintaining permits for its facilities or expanding existing
facilities. The combined companys failure to obtain the
required permits to operate its non-hazardous solid waste
landfills could hinder its ability to implement its vertical
integration strategy and could have a material adverse impact on
its future results of operations as 12.6% and 13.7% of
Republics and Allieds third-party revenues in 2007,
respectively, were generated from their landfills. Additionally,
landfills typically operate at a higher margin than
Republics and Allieds other operations. The combined
company also could incur higher costs due to the fact that it
would be required to dispose of its waste in landfills owned by
other waste companies or municipalities.
The
combined company may have potential environmental liabilities
that are not covered by its insurance; changes in insurance
markets may impact the combined companys financial
results.
The combined company may incur liabilities for the deterioration
of the environment as a result of its operations. The combined
company will maintain high deductibles for its environmental
liability insurance coverage. If the combined company were to
incur substantial liability for environmental damage, its
insurance coverage may be inadequate to cover such liability.
This could have a material adverse impact on the combined
companys liquidity, financial condition and results of
operations.
Also, due to the variable condition of the insurance market, the
combined company may experience in the future increased
self-insurance retention levels and increased premiums. As the
combined company assumes more risk for self-insurance through
higher retention levels, it may experience more variability in
its self-insurance reserves and expense.
Despite
the combined companys efforts, it may incur additional
hazardous substances liabilities in excess of amounts presently
known and accrued.
Each of Republic and Allied is a potentially responsible party
at various sites under CERCLA, which provides for the
remediation of contaminated facilities and imposes strict, joint
and several liability for the cost of remediation on current
owners and operators of a facility at which there has been a
release or a threatened release of a hazardous
substance, on former site owners and operators at the time
of disposal of the hazardous substance(s), and on persons who
arrange for the disposal of such substances at the facility
(e.g., generators of the waste and transporters who selected the
disposal site). Hundreds of substances are defined as
hazardous under CERCLA and their presence, even in
minute amounts, can result in substantial liability.
Notwithstanding the combined companys efforts to comply
with applicable regulations and to avoid transporting and
receiving hazardous substances, the combined company may have
future additional liability under CERCLA or similar laws in
excess of current liabilities accrued because such substances
may be present in waste collected by the combined company or
disposed of in the combined companys landfills, or in
waste collected, transported or disposed of in the past by
acquired companies. In addition, actual costs for these
liabilities could be significantly greater than amounts
presently accrued for these purposes.
41
The
combined company cannot assure you that it will continue to
operate its landfills at currently estimated volumes due to the
use of alternatives to landfill disposal caused by state
requirements or voluntary initiatives.
Most of the states in which Republic and Allied operate
landfills require counties and municipalities to formulate
comprehensive plans to reduce the volume of solid waste
deposited in landfills through waste planning, composting and
recycling or other programs. Some state and local governments
mandate waste reduction at the source and prohibit the disposal
of certain types of wastes, such as yard wastes, at landfills.
Although such actions are useful to protect the environment,
these actions, as well as voluntary private initiatives by
customers to reduce waste or seek disposal alternatives, may
reduce the volume of waste going to landfills in certain areas.
If this occurs, there can be no assurance that the combined
company will be able to operate its landfills at the current
estimated volumes or charge current prices for landfill disposal
services due to the decrease in demand for such services.
If the
combined company is unable to execute its business strategy, its
waste disposal expenses could increase
significantly.
Implementation of the combined companys vertical
integration strategy will depend on its ability to maintain
appropriate collection operations, transfer stations and
landfill capacity. The combined company cannot assure you that
it will be able to replace such assets either timely or cost
effectively. The combined company cannot assure you that it will
be successful in expanding the permitted capacity of its current
landfills once its landfill capacity is full. In such event, the
combined company may have to dispose of collected waste at
landfills operated by its competitors or haul the waste long
distances at a higher cost to another of its landfills, either
of which could significantly increase its waste disposal
expenses. Any such failure could seriously harm the combined
companys business, financial condition, results of
operations and cash flows.
The
solid waste industry is a capital-intensive industry and the
amount the combined company will spend on capital expenditures
may exceed its current expectations, which could require it to
issue additional equity or debt to fund its operations or impair
its ability to grow its business.
The combined companys ability to be competitive and expand
operations largely depends on its cash flow from operations and
access to capital. Republic and Allied spent $293 million
and $670 million, respectively, on capital expenditures
during 2007 and expect to spend approximately $335 million
and $650 million, respectively, in 2008. If the combined
companys capital efficiency programs are unable to offset
the impact of inflation and business growth, it may be necessary
to increase the amount it spends.
In addition, Republic and Allied spent approximately
$44 million and $75 million, respectively, on landfill
capping, closure and post-closure and environmental remediation
during 2007, and expect to spend approximately $64 million
and $96 million, respectively, in 2008. If the combined
company makes acquisitions or further expands its operations,
the amount it expends on capital, capping, closure, post-closure
and environmental remediation expenditures will increase. The
combined companys cash needs will also increase if the
expenditures for capping, closure and post-closure activities
increase above current estimates, which may occur over a long
period due to changes in federal, state, or local government
requirements. Increases in expenditures will result in lower
levels of cash flows.
Further, federal regulations have tightened the emission
standards on class A vehicles, which includes the
collection vehicles the combined company will purchase. As a
result, it could experience a reduction in operating efficiency.
This could cause an increase in vehicle operating costs. Also,
the combined company may reduce the number of vehicles it
purchases until manufacturers adapt to the new standards to
increase efficiency.
The
combined companys goodwill or other intangible assets may
become impaired, which could result in material non-cash charges
to its results of operations.
The combined company will have a substantial amount of goodwill
and other intangible assets resulting from the merger. At least
annually, or whenever events or changes in circumstances
indicate a potential impairment in the carrying value as defined
by GAAP, the combined company will evaluate this goodwill for
42
impairment based on the fair value of each reporting unit.
Estimated fair values could change if there are changes in the
combined companys capital structure, cost of debt,
interest rates, capital expenditure levels, operating cash
flows, or market capitalization. Impairments of goodwill or
other intangible assets could require material non-cash charges
to the combined companys results of operations.
The
possibility of impairments to disposal site developments,
expansion projects or certain other projects could result in a
material charge against the combined companys
earnings.
The combined company will capitalize certain expenditures
relating to disposal site development, expansion projects, and
other projects. If a facility or operation is permanently shut
down or determined to be impaired, or a development or expansion
project is not completed or is determined to be impaired, the
combined company will charge against earnings any unamortized
capitalized expenditures relating to such facility or project
that the combined company is unable to recover through sale or
otherwise. In future periods, the combined company may incur
charges against earnings in accordance with this policy, or due
to other events that cause impairments. Depending on the
magnitude, any such charges could have a material adverse impact
on the combined companys financial condition and results
of operations.
Currently
pending or future litigation or governmental proceedings could
result in material adverse consequences, including judgments or
settlements.
Republic and Allied are and from time to time become involved in
lawsuits, regulatory inquiries and governmental and other legal
proceedings arising out of the ordinary course of their
businesses. In addition, Republic has been sued by certain of
its stockholders seeking to enjoin the merger. Many of these
matters raise difficult and complicated factual and legal issues
and are subject to uncertainties and complexities. The timing of
the final resolutions to these types of matters is often
uncertain. Additionally, the possible outcomes or resolutions to
these matters could include adverse judgments or settlements,
either of which could require substantial payments, adversely
affecting the combined companys results of operations and
liquidity.
If the
combined company inadequately accrues for landfill capping,
closure and post-closure costs, its results of operations and
financial condition may be adversely affected.
A landfill must be capped and closed, and post-closure
maintenance must be commenced once the permitted capacity of the
landfill is reached and additional capacity is not authorized.
The combined company will have significant financial obligations
relating to such capping, closure and post-closure costs of
Republics and Allieds existing owned or operated
landfills and will have material financial obligations with
respect to any future owned or operated landfills. The combined
company will establish accrued liabilities for the estimated
costs associated with such capping, closure and post-closure
financial obligations. The combined company could underestimate
such accruals and its financial obligations for capping, closure
or post-closure costs could exceed the amount accrued and
reserved or amounts otherwise receivable pursuant to trust funds
established for this purpose. Such a shortfall could result in
significant unanticipated charges to income. Additionally, if a
landfill is required to be closed earlier than expected or its
remaining air-space is reduced for any other reason, the
accruals for capping, closure and post-closure could be required
to be accelerated which could result in a material charge to
income.
The
combined companys financial statements will be based on
estimates and assumptions that may differ from actual
results.
The combined companys financial statements will be
prepared in accordance with GAAP and necessarily will include
amounts based on estimates and assumptions made by management.
Actual results could differ from these amounts. Significant
items subject to such estimates and assumptions include the
carrying value of long-lived assets, the depletion and
amortization of landfill development costs, accruals for final
capping, closure and
post-closure
costs, valuation allowances for accounts receivable and deferred
tax assets, liabilities for potential litigation, claims and
assessments, and liabilities for environmental remediation,
employee benefit plans, deferred taxes, uncertain tax positions
and self-insurance.
There can be no assurance that the liabilities to be recorded
for landfill and environmental costs will be adequate to cover
the requirements of existing environmental regulations, future
changes to or interpretations
43
of existing regulations, or the identification of adverse
environmental conditions previously unknown to management.
The
introduction of new accounting rules, laws or regulations could
adversely impact the combined companys results of
operations.
Complying with new accounting rules, laws or regulations could
adversely impact the combined companys financial
condition, results of operations or funding requirements, or
cause unanticipated fluctuations in its results of operations in
future periods.
The
combined companys obligation to fund multi-employer
pension plans to which it will contribute may have an adverse
impact on it.
Republic and Allied contribute to at least 28 multi-employer
pension plans covering at least 22% of the expected employees of
the combined company. Republic and Allied do not administer
these plans and generally are not represented on the boards of
trustees of these plans. The Pension Protection Act enacted in
August 2006 requires under-funded pension plans to improve their
funding ratios, perhaps beginning as soon as 2008. Republic and
Allied do not have current plan financial information for the
multi-employer plans to which each company contributes but,
based on the information available, some of them may be
under-funded. It cannot be determined at this time the amount of
additional funding, if any, the combined company would be
required to make to these plans and, therefore, no liability has
been recorded, but under-funded plans could have an adverse
impact on the combined companys cash flows or results of
operations for a given period. Furthermore, under current law,
upon the termination of a multi-employer pension plan, or in the
event of a mass withdrawal of contributing employers, the
combined company would be required to make payments to the plan
for its proportionate share of the plans unfunded vested
liabilities. The bankruptcy of a participant in a multi-employer
pension plan could increase the liabilities of the remaining
participants. There can be no assurance that there will not be a
termination of, or the bankruptcy or mass withdrawal of
employers contributing to, any of the multi-employer pension
plans to which Republic or Allied contributes or that, in the
event of such a termination, bankruptcy or mass withdrawal, the
amounts the combined company would be required to contribute
would not have an adverse impact on the combined companys
cash flows or results of operations.
The
loss of key personnel could have a material adverse effect on
the combined companys financial condition, results of
operations and growth prospects.
The success of the combined company will depend on the continued
contributions of key employees and officers. The loss of the
services of key employees and officers, whether such loss is
through resignation or other causes, or the inability to attract
additional qualified personnel, could have a material adverse
effect on the combined companys financial condition,
results of operations and growth prospects.
44
CAUTIONARY
STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS
This document contains certain forward-looking information about
Republic, Allied and the combined company that is intended to be
covered by the safe harbor for forward-looking
statements provided by the Private Securities Litigation
Reform Act of 1995. These statements may be made directly in
this joint proxy statement/prospectus or may be incorporated
into this joint proxy statement/prospectus by reference to other
documents and may include statements for the period following
the completion of the merger. Representatives of Republic and
Allied may also make forward-looking statements. Forward-looking
statements are statements that are not historical facts. Words
such as expect, believe,
will, may, anticipate,
plan, estimate, intend,
should, can, likely,
could and similar expressions are intended to
identify forward-looking statements. These statements include
statements about the expected benefits of the merger,
information about the combined company, including expected
synergies, combined operating and financial data and the
combined companys objectives, plans and expectations, the
likelihood of satisfaction of certain conditions to the
completion of the merger and whether and when the merger will be
consummated. Forward-looking statements are not guarantees of
performance. These statements are based upon the current beliefs
and expectations of the management of each of Republic and
Allied and are subject to risks and uncertainties, including the
risks described in this joint proxy statement/prospectus under
the section Risk Factors and those that are
incorporated by reference into this joint proxy
statement/prospectus that could cause actual results to differ
materially from those expressed in, or implied or projected by,
the forward-looking information and statements.
In light of these risks, uncertainties, assumptions and factors,
the results anticipated by the forward-looking statements
discussed in this joint proxy statement/prospectus or made by
representatives of Republic or Allied may not occur. Readers are
cautioned not to place undue reliance on these forward-looking
statements which speak only as of the date hereof or, in the
case of statements incorporated by reference, on the date of the
document incorporated by reference, or, in the case of
statements made by representatives of Republic or Allied, on the
date those statements are made. All subsequent written and oral
forward-looking statements concerning the merger or the combined
company or other matters addressed in this joint proxy
statement/prospectus and attributable to Republic or Allied or
any person acting on their behalf are expressly qualified in
their entirety by the cautionary statements contained or
referred to in this section. Except to the extent required by
applicable law or regulation, neither Republic nor Allied
undertakes any obligation to update or publish revised
forward-looking statements to reflect events or circumstances
after the date hereof or the date of the forward-looking
statements or to reflect the occurrence of unanticipated events.
45
THE
MERGER
The following discussion contains important information
relating to the merger. You are urged to read this discussion
together with the merger agreement and related documents
attached as annexes to this joint proxy statement/prospectus
before voting.
Structure
of the Merger
Subject to the terms and conditions of the merger agreement and
in accordance with Delaware law, RS Merger Wedge, Inc., a wholly
owned subsidiary of Republic that was formed for the purpose of
the merger, will be merged with and into Allied, with Allied
surviving the merger and becoming a wholly owned subsidiary of
Republic. Immediately following the merger, Republic will
continue to be named Republic Services, Inc. and
will be the parent company of Allied. Accordingly, after the
effective time of the merger, shares of Allied common stock will
no longer be publicly traded.
Merger
Consideration
Allied Stockholders. As a result of the
merger, at the effective time, Allied stockholders will be
entitled to receive .45 shares of Republic common stock for
each share of Allied common stock that they own. The number of
shares of Republic common stock delivered in respect of each
share of Allied common stock pursuant to the merger is referred
to as the exchange ratio. The exchange ratio is fixed and will
not be adjusted to reflect stock price changes prior to the
effective time of the merger. Republic will not issue any
fractional shares of Republic common stock in the merger.
Instead, Allied stockholders will be entitled to receive cash
for any fractional shares of Republic common stock that they
otherwise would receive pursuant to the merger (after
aggregating all shares held). The amount of cash for each
fractional share will be calculated by multiplying the fraction
of a share of Republic common stock to which the Allied
stockholder would have been entitled to receive pursuant to the
merger by the closing sale price of a share of Republic common
stock on the first trading day immediately following the
effective time of the merger. The Republic common stock received
based on the exchange ratio, together with any cash received in
lieu of fractional shares, is referred to as the merger
consideration. For more information about fractional share
treatment, please see The Merger Agreement
Merger Consideration Fractional Shares
beginning on page 106.
Republic Stockholders. Republic stockholders
will continue to own their existing shares of Republic common
stock after the merger. Each share of Republic common stock will
represent one share of common stock in the combined company.
Ownership
of the Combined Company After the Merger
As of June 30, 2008, approximately 181.9 million
shares of Republic common stock are outstanding and
approximately 10.5 million shares of Republic common stock
are reserved for the exercise of outstanding Republic options
and settlement of other outstanding Republic equity-based
awards. In accordance with terms of the merger, at the effective
time of the merger, Republic (1) will issue approximately
196.2 million shares of Republic common stock to Allied
stockholders pursuant to the merger and (2) will reserve
for issuance approximately 14.1 million shares of Republic
common stock in connection with the exercise or settlement of
Allied equity-based awards and conversion of the Allied
convertible debentures. Republic and Allied expect that the
shares of Republic common stock issued in connection with the
merger in respect of Allied common stock will represent
approximately 51.7% of the outstanding common stock of the
combined company immediately after the merger on a diluted
basis. Shares of Republic common stock held by Republic
stockholders immediately prior to the merger will represent
approximately 48.3% of the outstanding common stock of the
combined company immediately after the merger on a diluted basis.
Background
of the Merger
Before 2006, the management of Republic and Allied engaged in
several informal discussions regarding potential combination
scenarios dating back to 2003. However, all of these discussions
were terminated early in the discussion process due to a variety
of issues.
46
2006
Discussions between Allied and Republic
In late April 2006, the Allied board of directors had a
discussion with its financial advisor, UBS, regarding a possible
no premium stock-for-stock merger between Allied and Republic.
During May and June 2006, Jim OConnor, Chairman and Chief
Executive Officer of Republic, and John Zillmer, Chairman and
Chief Executive Officer of Allied, engaged in informal
discussions regarding the merger of Republic and Allied.
Mr. Zillmer proposed a transaction that at the time was
believed by Mr. OConnor to be below market for the
Republic shares and Mr. OConnor advised him that he
did not believe it would be of interest to the Republic board of
directors. On July 18, 2006, the Republic board of
directors met and Mr. OConnor reported his
conversations with Mr. Zillmer. Although Allieds
proposal was not of interest to the Republic board of directors,
analyses performed in July 2006 by Republic and its financial
advisor, Merrill Lynch, indicated that a combination of Republic
and Allied would result in appreciable cash flow accretion to
Republic stockholders. As a result, for the next several months,
management and the Republic board of directors engaged in
discussions and reviewed presentations prepared by Merrill Lynch
regarding a potential transaction with Allied. This review
culminated in Republic board of directors meetings on October 26
and 27, 2006 during which Merrill Lynch presented additional pro
forma impact analyses in which Republic would acquire Allied in
a no-premium stock-for-stock merger.
On November 14, 2006, the Republic board of directors
authorized Mr. OConnor to commence discussions with
Allied regarding a potential transaction between Republic and
Allied.
In November 2006, Mr. OConnor spoke with
Mr. Zillmer to summarize Republics position regarding
a potential no-premium stock-for-stock merger between Republic
and Allied which included Republic having a majority of the
board of directors and management control of the combined
company. Mr. Zillmer indicated that he would discuss
Republics position with the Allied board of directors at
its next scheduled board meeting.
At a regularly scheduled board of directors meeting on
December 7, 2006, Mr. Zillmer discussed his
conversations with Mr. OConnor with the Allied board
of directors. On December 8, 2006, Mr. Zillmer
contacted Mr. OConnor to discuss Allieds
response to Republics position. Mr. Zillmer indicated
that Allied preferred a merger in which Republic would not have
a majority of the board of directors nor management control of
the combined company.
On December 14, 2006, the Republic board of directors met
and Mr. OConnor reported his conversations with
Mr. Zillmer. Upon receipt of this information, the Republic
board of directors determined that Mr. OConnor should
contact Mr. Zillmer to communicate that there was no need
for any further discussions because the proposed transaction did
not appear to be likely at that time.
Allieds
Strategic Review
For several months in mid-2007, UBS assisted Allied in exploring
strategic opportunities. Several parties expressed interest in
evaluating a transaction involving Allied and, during this time,
such parties met with Allieds management and conducted due
diligence on Allied. The Allied board of directors met several
times during this period to discuss the transaction process and
their fiduciary duties, and, ultimately, to review the initial,
non-binding proposals received from such parties. In August
2007, the Allied board of directors determined to suspend the
process with respect to a potential transaction involving Allied
and determined to revisit Allieds strategic alternatives
at a future date.
2007
and 2008 Discussions between Allied and Republic
During November 2007 through January 2008, through the course of
regular discussions with Republic regarding strategic
opportunities, Merrill Lynch presented to Republic management
several analyses of a potential Republic merger with Allied.
These presentations culminated in Mr. OConnor calling
Mr. Zillmer to engage in new discussions regarding a
potential transaction.
During early 2008, Mr. OConnor and Mr. Zillmer
engaged in informal discussions by telephone regarding the
potential merger of Republic and Allied. During this time,
representatives of UBS reviewed with
47
Allieds management several analyses of a potential
transaction with Republic. On March 25, 2008, Republic and
Allied entered into a confidentiality agreement.
From April 1, 2008 through April 3, 2008,
Mr. OConnor visited Allied in Arizona with members of
the Republic management team to discuss in person with
Allieds management team a possible transaction between
Allied and Republic. On April 7, 2008, Mr. Zillmer
updated the Allied board of directors regarding the status of
discussions with Republic and indicated that he would provide a
detailed presentation at the next regularly scheduled board of
directors meeting.
On April 15, 2008, the Republic board of directors met and
Mr. OConnor reported on his discussions with
Mr. Zillmer and on the management meetings in Arizona
regarding possible reasons for a potential merger between
Republic and Allied. Republics management provided the
Republic board of directors a review of the potential synergies
associated with the potential merger. Merrill Lynch discussed
the changes in the potential transaction since Republics
discussions with Allied in 2006, including changes to each
companys market valuation, and the pro forma impact to
Republic. Merrill Lynch also discussed preliminary pro forma
consequences and relative valuation analyses it had performed,
based on potential synergies and divestiture exposures.
On April 16, 2008, the Republic board of directors meeting
reconvened. The Republic board of directors considered the
advice of legal counsel, Akerman Senterfitt, regarding the board
of directors fiduciary duties. The Republic board of
directors advised Merrill Lynch and Akerman Senterfitt to work
together to prepare a proposal letter to Allied.
On April 22, 2008, the Republic board of directors met and
discussed updates regarding the status of the potential merger
with Allied. Republics management provided the Republic
board of directors with a memorandum of its recommendations on
the possible merger and a draft proposal letter. Merrill Lynch
updated the analyses that were presented on April 15, 2008,
including updated pro forma consequences analyses. Following
discussions regarding the exchange ratio, the Republic board of
directors authorized including an exchange ratio of .43 in the
proposal letter to Allied. The Republic board of directors
authorized Mr. OConnor to finalize the proposal
letter, as discussed during the meeting, and present such
proposal letter to Mr. Zillmer.
On April 22, 2008, Republic sent a preliminary proposal
letter addressed to Mr. Zillmer for a stock-for-stock
merger combination between Republic and Allied. The proposed
exchange ratio was .43. The key assumptions for the proposed
transaction were the following:
|
|
|
|
|
Republic would continue to pay the same cash dividend to
stockholders, subject to regular review and adjustment by the
Republic board of directors;
|
|
|
|
the pro forma company would receive an investment grade rating;
|
|
|
|
the existing credit facilities of Republic and Allied could be
amended or modified to accommodate the proposed transaction;
|
|
|
|
there would not be any material changes in either companys
capital structure, results of operations, financial condition or
business since the April 3, 2008 meeting; and
|
|
|
|
the stock-for-stock exchange would qualify as a tax-free
reorganization and therefore be tax-free to stockholders of both
companies.
|
The preliminary proposal provided that the merger would be
conditioned upon standard merger agreement protections, relevant
government and antitrust approvals and necessary stockholder
approvals of both companies. The preliminary proposal letter
also provided that Mr. OConnor would become the
Chairman and Chief Executive Officer of the combined company,
and that the remaining board of directors would consist of an
equal number of directors from both Republic and Allied. The
preliminary proposal letter also provided that the management
team of the combined company would include Mr. Donald W.
Slager of Allied as Chief Operating Officer.
On April 24, 2008, the Allied board of directors held a
regular meeting at which the Republic proposal was discussed.
Representatives of UBS discussed UBS analyses regarding
the potential transaction and the
48
pro forma impact on earnings and free cash flow, credit
statistics and value creation, as well as the solid waste sector
benchmarking and a review of strategic alternatives. The Allied
board of directors authorized Allieds representatives to
make a counteroffer to Republic. Accordingly, on April 24,
2008, Allieds financial advisor, UBS, provided Republic
with a counteroffer to Republics preliminary proposal
letter. The counteroffer proposed the following:
|
|
|
|
|
a higher exchange ratio of .45;
|
|
|
|
the need for a super-majority vote of the combined company board
of directors to remove either the Chairman and Chief Executive
Officer or President and Chief Operating Officer; and
|
|
|
|
the need for Mr. Slager, Chief Operating Officer and
President of Allied, to be designated President and Chief
Operating Officer of the combined company, reporting directly to
Mr. OConnor.
|
On April 29, 2008, the Republic board of directors held a
telephonic special meeting to discuss the status of the
potential merger with Allied. Merrill Lynch outlined the terms
of Allieds counteroffer of April 24, 2008. The
Republic board of directors discussed the impact of the change
in the exchange ratio and the corporate governance issues.
Merrill Lynch provided updated pro forma consequences analyses.
The Republic board of directors authorized
Mr. OConnor to call Mr. Zillmer to summarize the
Republic board of directors position on the counteroffer,
which was the following:
|
|
|
|
|
to agree with the exchange ratio being set at .45;
|
|
|
|
to agree on the designation of Mr. Slager as President and
Chief Operating Officer of the combined company, reporting
directly to Mr. OConnor;
|
|
|
|
to reject the requirement of a super-majority vote of the
combined company board of directors to remove either the
Chairman and Chief Executive Officer or President and Chief
Operating Officer;
|
|
|
|
to request a majority of Republic independent directors, in
addition to Mr. OConnor, to constitute the board of
directors of the combined company; and
|
|
|
|
to request that Mr. OConnor meet with Mr. Slager
to discuss the proposed organization of the combined company.
|
On May 1, 2008, Mr. Zillmer called
Mr. OConnor to discuss the potential transaction,
Allieds counteroffer and Republics response.
Mr. Zillmer confirmed that Mr. OConnor could
meet with Mr. Slager to discuss the proposed organization
of the combined company.
On May 1, 2008, the Republic board of directors held a
telephonic special meeting to discuss updates regarding the
potential merger with Allied. Mr. OConnor reported
his discussion with Mr. Zillmer regarding Republics
response to Allieds counteroffer. The Republic board of
directors determined that Mr. OConnor should contact
Mr. Slager to discuss the proposed organization of the
combined company.
Mr. OConnor, Mr. Michael J. Cordesman, President
and Chief Operating Officer of Republic, Mr. Tod C. Holmes,
Senior Vice President and Chief Financial Officer of Republic,
and Mr. Slager met on May 5 and 6, 2008 in Chicago to
discuss the potential merger and the proposed organization of
the combined company.
On May 8, 2008, the Republic board of directors held a
telephonic special meeting to discuss updates regarding the
potential merger with Allied. Mr. OConnor reported
that he met with Mr. Slager, Mr. Cordesman and
Mr. Holmes earlier that week to discuss the proposed
organization of the combined company. After those discussions,
Mr. OConnor advised the Republic board of directors
that he believed that the Republic management could work with
Mr. Slager to create an effective organization for the
combined company and that integration of the management teams
would not present an issue in consummating the potential merger
or in operating the combined company.
On May 9, 2008, the Allied board of directors held a
telephonic special meeting to discuss the status of the
potential merger with Republic. Mr Slager reported on his
meetings with Mr. OConnor. Mr. Zillmer then
discussed various governance issues with the Allied board of
directors. The Allied board of directors determined that Allied
should arrange a meeting between the Allied board of directors
and Mr. OConnor.
49
On May 9, 2008, Allied provided Republic with a revised
counteroffer consisting of the following terms:
|
|
|
|
|
the new headquarters of the combined company would be located at
Allieds current headquarters in Phoenix, Arizona;
|
|
|
|
an exchange ratio of .45;
|
|
|
|
there would be no collar or walkaway rights;
|
|
|
|
the board of directors of the combined company would consist of
Mr. OConnor as the Chairman, five independent
directors nominated by Republic and five independent directors
nominated by Allied for a total of eleven directors;
|
|
|
|
Mr. Slager would be the President and Chief Operating
Officer of the combined company, reporting directly to
Mr. OConnor; and
|
|
|
|
the remainder of the management team would be mutually agreed
upon based on contributions from each company.
|
On May 12, 2008, the Republic board of directors held a
telephonic special meeting to discuss updates regarding the
potential merger with Allied and review Allieds revised
counteroffer. The Republic board of directors granted
Mr. OConnor the authority to call Mr. Zillmer
and relay the Republic board of directors concerns with
the revised counteroffer.
On May 12, 2008, Republic delivered a revised proposal
letter to Mr. Zillmer. In the revised proposal letter
Republic recited the terms of Allieds revised counteroffer
with the exception of the selection of the remainder of the
management team on a mutually agreed upon basis. Republics
revised proposal instead stated that Mr. OConnor
would assemble the remainder of the management team.
On May 16, 2008, the Republic board of directors met and
discussed updates regarding the potential merger with Allied.
Mr. OConnor informed the Republic board of directors
that he was scheduled to meet with Mr. Slager and the
Allied board of directors in New York on June 5, 2008 to
discuss the organization of the combined company, and
immediately thereafter, he would also meet with the Republic
board of directors along with Mr. Slager to discuss the
same matter.
On May 16, 2008, Allied circulated a draft merger agreement.
On May 19, 2008, representatives of each of Republic and
Allied met by teleconference to commence the mutual due
diligence process. Mutual due diligence proceeded over several
weeks on financial, operational, accounting, information
systems, legal, tax, environmental, labor and other matters.
On June 4, 2008, representatives of the management teams of
both Republic and Allied jointly met on a confidential basis
with Moodys and Standard & Poors to brief
each credit ratings agency on the proposed transaction and
financial impact to the credit of both companies and inquire
whether both agencies would likely assign the combined company
investment grade ratings. Republic and Allied management
subsequently responded to various
follow-up
questions asked by each agency. Based on the meetings and the
preliminary indications of the rating agencies, Republic and
Allied believe that the combined company will receive investment
grade ratings.
Also on June 4, 2008, representatives of Republic and its
legal counsel, Akerman Senterfitt, met with representatives of
Allied and its legal counsel, Mayer Brown LLP, to discuss in
person the draft merger agreement.
On June 5, 2008, the Allied board of directors met in New
York regarding the proposed merger. Mayer Brown LLP updated the
directors on the status of negotiations and the antitrust
analysis. Allied management discussed with the board of
directors synergy analyses, due diligence and various financial
considerations. Representatives of UBS discussed UBS
updated analyses of the proposed transaction which it provided
in an oral presentation to the Allied board of directors.
Mr. OConnor joined for a portion of the meeting and
made a joint presentation with Mr. Slager regarding the
strategy and vision for the combined company and responded to
questions from the Allied board of directors.
50
On June 5, 2008, immediately following the Allied board of
directors meeting, Mr. OConnor and Mr. Slager
met in New York with the Republic board of directors. They made
a joint presentation regarding the strategy and vision for the
combined company. Mr. Slager also discussed his background
in the solid waste industry and answered questions posed by the
Republic board of directors about integrating the combined
company and potential synergies.
Following the board of directors meetings on June 5, 2008,
representatives of the boards of directors, the management
teams, the financial advisors and legal counsel of Republic and
Allied met informally.
Over the following weeks, mutual due diligence and the
negotiation of the definitive merger agreement continued.
On June 13, 2008, The Wall Street Journal reported that
Republic and Allied were engaged in discussions regarding a
potential merger of Allied and Republic. Both companies issued a
joint press release that day confirming that they were in
discussions and that, under the terms being discussed, Republic
would offer Allied stockholders .45 shares of Republic
common stock for each share of Allied common stock.
On June 19, 2008, the Republic board of directors met to
discuss updates regarding the potential merger with Allied.
Republics management provided the Republic board of
directors a review of the due diligence process and Merrill
Lynch updated its presentation that was presented on
April 22, 2008, including updated pro forma consequences
and relative valuation analyses. At this meeting, the Republic
board of directors reviewed certain corporate governance matters
and other terms and conditions to be set forth in the merger
agreement. The Republic board of directors granted
Mr. OConnor the authority to call Mr. Zillmer
and discuss certain corporate governance matters to be set forth
in the merger agreement.
On June 20, 2008, the Republic board of directors held a
telephonic special meeting to discuss updates regarding the
potential merger with Allied. At this meeting, the Republic
board of directors reviewed certain of the closing conditions to
be set forth in the merger agreement. The Republic board of
directors granted Mr. OConnor the authority to call
Mr. Zillmer and discuss certain closing conditions to be
set forth in the merger agreement.
On June 22, 2008, the Republic board of directors held a
telephonic special meeting to consider resolutions approving the
merger. Also, at this meeting, Merrill Lynch reviewed with the
Republic board of directors its financial analyses of the
exchange ratio and rendered to the Republic board of directors
an opinion, dated June 22, 2008, to the effect that, as of
that date and based on and subject to the matters stated in the
opinion, the exchange ratio was fair from a financial point of
view to Republic. The Republic board of directors primarily
evaluated the exchange ratio based upon relative valuation
analyses of Republic and Allied, among other things, because
Republic was considering issuing shares in connection with the
Allied merger and was not for sale. The meeting concluded with
the passing of resolutions of the Republic board of directors
approving and adopting the merger and the merger agreement and
related matters and authorizing management to finalize the
negotiations.
Also on June 22, 2008, the Allied board of directors met in
New York to consider the merger. Mayer Brown LLP updated its
presentation regarding the terms of the merger agreement, the
board of directors fiduciary duties and the antitrust
analysis of the transaction. The Allied board of directors also
received updated presentations regarding synergy analyses, due
diligence and financial considerations. Next, representatives of
UBS presented to the board of directors UBS financial
analyses of the transaction and delivered an oral opinion, which
opinion was confirmed by delivery of a written opinion dated
June 22, 2008, to the effect that, as of that date and
based on and subject to various assumptions, matters considered
and limitations described in its opinion, the exchange ratio
provided for in the merger was fair, from a financial point of
view, to the holders of Allied common stock. The meeting
concluded with the passing of resolutions of the Allied board of
directors approving the merger, adopting the merger agreement
and approving certain related matters.
Following the meetings, on the evening of June 22, 2008,
Republic and Allied signed the merger agreement. On the
following morning of June 23, 2008, the parties issued a
joint press release announcing the execution of the merger
agreement and held a conference call to discuss the transaction.
51
On the morning of July 14, 2008, Mr. OConnor
received an unsolicited call from David Steiner, the Chief
Executive Officer of Waste Management, Inc., which we refer to
as Waste, advising him that by letter to be sent that morning
prior to the opening of trading on the stock markets, Waste
would make a proposal to the Republic board of directors to
acquire all of Republics outstanding common stock for
$34.00 per share in cash. Mr. OConnor shortly
thereafter received the proposal, which expressly was subject to
Waste conducting a due diligence review of Republic, obtaining
financing, clearing all antitrust reviews without divestitures
that would have a material adverse effect, maintaining its
investment grade credit ratings and other conditions.
Mr. OConnor reviewed the proposal with
Republics legal counsel and financial advisors. That
morning, Waste also issued a press release, which included a
copy of Mr. Steiners letter to Mr. OConnor.
That afternoon, the Republic board of directors conducted a
telephonic meeting at which Republics legal counsel,
Akerman Senterfitt, and financial advisors, Merrill Lynch,
provided an overview of the Waste proposal and a discussion of
the Republic board of directors duties and obligations
under the merger agreement with Allied and in accordance with
Delaware law. The Republic board of directors also authorized
the engagement of Wachtell, Lipton, Rosen & Katz as
special counsel to represent Republic in connection with the
Waste proposal and related matters. The Republic board of
directors asked Merrill Lynch to provide it with financial
analyses of the Waste proposal and asked its legal advisors to
review and advise it with respect to the other conditions
included in the proposal.
On July 14, 2008 and July 17, 2008, Allied delivered
letters to Republic stating that it did not believe that the
Waste proposal represented a Superior Proposal nor a
proposal that could be reasonably expected to lead to a
Superior Proposal (as defined in the merger
agreement) and, therefore, asserting that Republic could not
engage in discussions with, or provide information to, Waste in
connection with its unsolicited proposal.
On July 16, 2008, Mr. OConnor received a call
from Michael Larson of BGI, the investment office that manages
the assets of Cascade Investment, L.L.C. and the
Bill & Melinda Gates Foundation Trust. At the time,
Cascade and the Gates Foundation Trust beneficially owned
approximately 15% of Republic, which made them the largest
stockholders of Republic. Mr. Larson said he called
Mr. OConnor to advise Republic that BGI did not
support the Waste proposal. Mr. Larson also told
Mr. OConnor that BGI was contemplating issuing a
press release to publicly disclose its disapproval of the Waste
proposal and its support of Republics merger with Allied.
Mr. Larson also reiterated a request that BGI first made to
Republic in January 2008, when Cascades holdings, due to
Republics stock repurchase programs, first approached the
15% level, that Republic waive Section 203 of the Delaware
General Corporation Law, Delawares antitakeover statute.
The waiver of Section 203 was requested to allow Cascade
and the Gates Foundation Trust to be able to acquire more shares
of Republic common stock in the open market, without being
subject to the restrictions on certain transactions set forth in
Section 203. Cascades original request was going to
be reviewed at the board of directors regular meeting in
April 2008, but consideration of the request at that time was
deferred as the discussions with Allied were progressing. As the
Allied merger had since been announced and was proceeding,
Mr. OConnor advised Mr. Larson that the Republic
board of directors would review the renewed request.
Mr. OConnor stated that the Republic board of
directors would be meeting soon to review the Waste proposal.
On July 17, 2008, the Republic board of directors conducted
a telephonic meeting to review the Waste proposal. Merrill Lynch
provided a review of the conditions to which the Waste proposal
was subject, including (1) the requirement for Waste to
clear federal and state antitrust regulatory reviews, without
divestitures that would reasonably be expected to have a
material adverse effect, (2) the need for Waste to obtain
financing commitments for more than $6 billion in cash in
order to fund the proposal, (3) the requirement that Waste
maintain an investment grade rating following the closing of an
acquisition of Republic, and (4) Wastes request to
conduct due diligence on Republic. Merrill Lynch noted that two
of the ratings agencies placed Waste on review for possible
downgrade subsequent to Wastes announcement of its
proposal to purchase Republic, and that Waste only had a
highly confident indication from its financial
advisor, Credit Suisse, that it could obtain commitments for the
financing. Legal counsel advised the Republic board of directors
that the antitrust regulatory review for an acquisition of
Republic by Waste likely would be more complex and involve
greater delay than the regulatory review necessary for the
Allied transaction due to
52
the greater number of market overlaps and Wastes need to
comply with consent decrees previously entered into by Waste.
The Republic board of directors discussed the issues presented
by the conditions in the Waste proposal, and concluded that
Waste had not sufficiently and clearly articulated how or when
such significant conditions were going to be satisfied by Waste.
At the meeting, Merrill Lynch then provided the Republic board
of directors with an analysis of the financial terms of the
proposed transaction and reviewed the analyses previously
provided regarding the transaction with Allied. Merrill Lynch
estimated that, based on discount rates ranging from 8.0% to
10.0% and a projected period required to close the proposed
transaction ranging from six to twelve months, the discounted
present value range of the $34.00 per share price proposed by
Waste was approximately $31.00 to $33.00 per share. Because
discounted stock prices are typically calculated using a
discount rate based solely on the cost of equity, Merrill Lynch
selected these discount rates based on Republics cost of
equity. Merrill Lynch compared the nominal and discounted value
of Wastes proposal to the historical trading performance
of Republic common stock, including the closing price per share
of Republic common stock on June 12, 2008, the last trading
day before the day on which Republic and Allied confirmed that
they were involved in discussions regarding a possible business
combination, and on July 11, 2008, the last trading day
before the Waste proposal was announced, as well as the maximum
and minimum price per share of Republic common stock over the
previous
12-month
period and various averages of prices for shares of Republic
common stock over periods ranging from 30 days to
3 years. Merrill Lynch advised the Republic board of
directors that, in its view, neither the discounted proposal
price nor the nominal price of $34.00 per share represented a
meaningful premium to the closing price per share of Republic
common stock on June 12, 2008, the last trading day before
the day on which Republic and Allied confirmed that they were
involved in discussions regarding a possible business
combination, or the average closing prices for shares of
Republic common stock over the
90-day and
52-week periods ending on July 11, 2008, the last trading
day before the Waste proposal was announced. Merrill Lynch also
reviewed with the Republic board of directors its valuation
analyses of Allied and Republic as a combined company, including
an analysis based on the discounted estimated cash flow of the
combined company that reflected synergies expected by Republic
management. For purposes of these valuation analyses, Merrill
Lynch used the same base case financial forecasts that were
reviewed by the Republic board of directors at its meeting on
June 22, 2008, which are described below under
Certain Financial Forecasts Reviewed by the Republic Board
of Directors. The discounted estimated cash flow analysis
yielded a per share value range for Allied and Republic as a
combined company of $36.00 to $42.00. This discounted cash flow
analysis utilized assumptions for terminal multiples based on
trading characteristics of Republic and its comparable companies
and did not include value associated with a control premium. In
evaluating Wastes proposal, which would be mutually
exclusive of completing the merger with Allied the Republic
board of directors primarily considered the value of Republic
based on the discounted estimated cash flow for Republic and
Allied as a combined company, and the discounted estimated value
range of the Waste proposal, among other things.
Also at the July 17 meeting, Republics legal advisors
reviewed with the Republic board of directors its fiduciary
duties in connection with the Waste proposal. Republics
legal advisors also provided the Republic board of directors
with a legal overview of the Waste proposal, and reiterated to
the board the obligations and restrictions with respect to
unsolicited proposals under the merger agreement with Allied.
After careful consultation with its legal and financial advisors
and further deliberations among the directors, the Republic
board of directors determined unanimously that the Waste
proposal did not constitute, and could not reasonably be
expected to lead to, a proposal for a transaction that is or
would be more favorable to Republic stockholders than the merger
currently contemplated between Republic and Allied. At the
meeting, the Republic board of directors also reaffirmed its
recommendation to Republic stockholders regarding the existing
transaction with Allied.
On July 18, 2008, Mr. OConnor sent a letter to
Mr. Steiner relaying the Republic board of directors
determination regarding the Waste proposal. Republic also issued
a press release, including Mr. OConnors letter,
emphasizing that Republic is not for sale and that as a result
of the Republic board of directors determination, and in
accordance with Republics obligations under the terms of
the merger agreement with Allied, Republic may not furnish
information to, or have discussions and negotiations with,
Waste. The letter
53
and press release also addressed the Republic board of
directors views of key points of the Waste proposal,
noting that the Waste proposal seriously undervalues Republic
and appeared on its face to be opportunistic only for Waste. In
addition, the letter and press release noted the significant
conditions of the proposal that call into question the ability
of Waste to complete its proposed transaction.
On July 18, 2008, Waste issued a press release expressing
its disappointment with the determination by the Republic board
of directors and advising that it was reviewing its options.
On July 18, 2008, Allied issued a press release, indicating
that it was pleased with the Republic board of directors
determination regarding the Waste proposal and its reaffirmation
of the transaction with Allied.
On July 18, 2008, BGI, the investment office that manages
the assets of Cascade and the Gates Foundation Trust, which at
the time owned in the aggregate approximately 15.6% of Republic
and 2.3% of Waste, issued a press release indicating its support
of the merger between Republic and Allied, and announcing that
it would not support the proposal made by Waste to acquire
Republic. On July 21, 2008, Cascade filed a statement on
Schedule 13D which included the BGI press release.
On July 24, 2008, Waste notified Republic by a faxed letter
that it would be filing the requisite forms to commence the
federal and state antitrust reviews of its July 14, 2008
proposal to acquire all of Republics common stock. Waste
stated in the letter that it intended to acquire Republic shares
in open market purchases or other transactions. Waste also
issued a press release regarding its commencement of the
governmental antitrust review process.
On July 24, 2008, Republic issued a press release
reiterating that Wastes July 14 proposal was rejected by
the Republic board of directors. Republic noted that it
continues to believe the merger with Allied is in the best
interests of the Republic stockholders. Republic stated that it
will respond to Wastes antitrust notices as appropriate,
and guard against opportunistic attempts to disrupt its
strategic plans through open market activity or otherwise.
On July 25, 2008, a class action was filed in the Court of
Chancery of the State of Delaware by the New Jersey Carpenters
Pension and the New Jersey Carpenters Annuity Funds against
Republic and the members of the Republic board, each
individually. The suit sought to enjoin the proposed transaction
between Republic and Allied and compel Republic to accept the
unsolicited proposal made by Waste on July 14, 2008, or at
least compel the Republic board to further consider and evaluate
the Waste proposal.
On July 28, 2008, the Republic board of directors declared
a dividend of one preferred share purchase right, which is
referred to as a right and collectively as the rights, for each
outstanding share of Republic common stock. The dividend was
paid to holders of record of Republics common stock as of
the close of business on August 7, 2008. The specific terms
of the rights are contained in the Rights Agreement, dated as of
July 28, 2008, by and between Republic and The Bank of New
York Mellon, as Rights Agent.
The Republic board of directors adopted the Rights Agreement to
protect Republic stockholders from coercive or otherwise unfair
takeover tactics. In general terms, the rights impose a
significant penalty upon any person or group which acquires
beneficial ownership of 10% (20% in the case of existing 10%
holders) or more of Republics outstanding common stock,
including derivatives, unless such acquisition was approved by
the Republic board of directors or such acquisition was in
connection with an offer for all of the outstanding shares of
Republic common stock for the same consideration. The rights
will terminate concurrently with the acquisition of more than
50% of Republics outstanding shares of common stock not
owned by the acquiring person in such an offer, provided that
the acquiring person irrevocably commits to acquire all
remaining untendered shares for the same consideration as in the
tender offer as promptly as practicable following completion of
the offer.
In adopting the carve-out to the Rights Agreement permitting
existing beneficial owners of 10% or more of Republic to acquire
up to 20% without triggering the exercise of the rights, the
Republic board of directors accommodated the request of BGI, on
behalf of Cascade and the Gates Foundation Trust, to be able to
acquire up to 20% in the aggregate of the outstanding shares of
Republic common stock. The Republic board of directors also
waived Section 203 of the Delaware General Corporation Law
to a limited extent to allow
54
Cascade and the Gates Foundation Trust to be able to acquire up
to 20% of the outstanding shares of Republic common stock
without being subject to Section 203. The Republic board of
directors took these actions because Cascade and the Gates
Foundation Trust were long-term stockholders of Republic, were
Republics largest stockholders and had never sold any of
their holdings in Republic. In addition, the Republic board of
directors considered that Cascades expressed interest in
purchasing more shares of Republic pre-dated the announcement of
the merger discussions with Allied and was not tied to either
the Allied merger or the Waste proposal proceeding or not
proceeding. There is no agreement, understanding or arrangement
with Cascade, the Gates Foundation Trust, BGI or their
affiliates, on the one hand, and Republic, on the other hand, as
to the acquisition, disposition or voting of shares of Republic
common stock. None of Cascade, the Gates Foundation Trust, BGI
or any of their affiliates has been in contact with Allied.
On July 28, 2008, Republic adopted bylaw amendments
intended to provide orderly procedures to regulate the written
consent process and to require notice and information about
stockholder proposals. Stockholders seeking to act by written
consent must request the Republic board of directors set a
record date for stockholders entitled to consent. The record
date must be set within ten days of a request and must be no
later than ten days after the Republic board acts. Absent this
bylaw, action could be taken by consent without prior notice to
Republic and all of its stockholders.
On July 28, 2008, Republic issued a press release
announcing that its board of directors had taken steps to
prevent disruptive and coercive acquisition tactics by adopting
the bylaw amendments and the shareholder rights plan pursuant to
the Rights Agreement. Republic also announced that its board of
directors had waived Section 203 of the Delaware General
Corporation Law with respect to the acquisition by Cascade and
the Gates Foundation Trust of up to 20% in the aggregate of the
outstanding shares of Republic common stock. On July 28,
2008, Cascade and the Gates Foundation Trust filed a
Schedule 13D/A acknowledging the waiver of Section 203
by the Republic board of directors, and stating that they may
utilize this waiver to acquire additional shares of Republic
common stock without becoming subject to Section 203.
On July 28, 2008, Waste issued a press release stating that
Republics adoption of the Rights Agreement and bylaws
amendments did not change its focus on acquiring Republic. Waste
also stated that it was working diligently to prepare a response
that addressed all of the issues raised by the Republic board of
directors in their letter dated July 18, 2008.
On July 30, 2008, the Republic board of directors held a
telephonic special meeting to review an amendment to the merger
agreement. The Republic board of directors discussed that the
only substantive change contemplated by the amendment to the
merger agreement would eliminate the requirement in the merger
agreement that the Republic charter be amended to include a
corporate governance provision relating to the combined
companys board composition structure. Instead, pursuant to
the amendment to the merger agreement, such corporate governance
provision would be included in the Republic bylaws. The Republic
board of directors was advised that any charter amendment would
require approval by a majority vote of the outstanding stock of
Republic, and that the implementation of the corporate
governance provision through the bylaw amendment was sufficient
and there was no need for a separate charter amendment proposal
and vote of Republic stockholders at the special meeting.
Following discussion, the Republic board of directors concluded
that the amendment to the merger agreement was advisable and in
the best interest of Republic and its stockholders.
Republics legal counsel also reviewed with the board of
directors a draft joint proxy statement/prospectus previously
delivered to all members of the board of directors.
On July 30, 2008, the amendment to the merger agreement,
which Allied management presented, at a regularly scheduled
board of directors meeting on July 24, 2008, was approved
pursuant to written consent.
On July 30, 2008, the Compensation Committee of the
Republic board of directors held a telephonic special meeting to
review various Republic employee benefit plans and severance
agreements. Following discussion with Republics legal
advisors, the Compensation Committee determined unanimously that
the closing of the merger with Allied would constitute a change
of control under various Republic employee benefit plans and
severance agreements. As a result of this determination, the
closing of the merger will trigger accelerated vesting of
certain benefits under various Republic employee benefit plans,
and may trigger
55
increased benefits payable under certain severance agreements in
connection with employment terminations upon or after the merger.
On August 1, 2008, Republic filed a preliminary joint proxy
statement/prospectus with the Securities and Exchange Commission
with respect to the merger with Allied and the Republic share
issuance in connection with the merger.
On Sunday, August 10, 2008, Mr. OConnor received
an unsolicited call from Mr. Steiner advising him that by
letter to be sent the following morning, Waste would make a
revised proposal to the Republic board of directors to acquire
all of Republics outstanding common stock for $37.00 per
share in cash. Mr. OConnor received the revised
proposal on Monday, August 11, 2008, and reviewed the
revised proposal with Republics legal and financial
advisors. In addition to increasing the proposed price, the
revised proposal attempted to address the concerns of the
Republic board of directors with the other terms and conditions
of Wastes original proposal by stating that Waste would
pay Republic a fee of $250 million if the parties are
unable to close a transaction due to opposition from the
Department of Justice; that Waste would include a ticking
fee by increasing the $37.00 per share price by an
interest component if antitrust clearance delayed a closing
beyond a date (the date and the terms of the ticking
fee to be on terms mutually acceptable to the parties);
that Waste believed financing was available to it; and that
Waste believed it would retain its investment grade rating. That
morning, Waste also issued a press release, which included a
copy of Mr. Steiners letter to Mr. OConnor.
On August 11, 2008, Allied issued a press release
commenting on Wastes revised proposal stating that the
revised proposal of $37.00 per share remained inferior to the
range of values supporting the merger of Republic and Allied,
and that Waste failed to address fully the antitrust, financing
and timing risks of the revised proposal.
On August 14, 2008, the Republic board of directors held a
telephonic special meeting at which Republics legal and
financial advisors provided an overview of Wastes revised
proposal. Republics legal counsel reminded the Republic
board of directors of its duties and obligations under the
merger agreement with Allied and under Delaware law. At the
August 14, 2008 meeting, Merrill Lynch provided the
Republic board of directors with an analysis of the financial
terms of Wastes revised transaction proposal. Although
Wastes revised transaction proposal lacked specificity
regarding the terms of its proposed ticking fee,
Merrill Lynch assumed that any interest component included in
the revised proposal would address the financial impact of any
delay in closing. Merrill Lynch estimated that, based on
discount rates ranging from 8.0% to 10.0% and a projected period
ranging from three to six months (the estimated time before the
ticking fee would be expected to take effect), the discounted
present value range of the $37.00 per share price proposed by
Waste was approximately $35.00 to $36.00 per share. Because
discounted stock prices are typically calculated using a
discount rate based solely on the cost of equity, Merrill Lynch
selected these discount rates based on Republics cost of
equity. Merrill Lynch compared the nominal and discounted value
of Wastes proposal to the historical trading performance
of Republic common stock, including the closing price per share
of Republic common stock on June 12, 2008, the last trading
day before the day on which Republic and Allied confirmed that
they were involved in discussions regarding a possible business
combination, on June 20, 2008, the last trading day before
the day on which Republic and Allied announced the execution of
the merger agreement, and on July 11, 2008, the last
trading day before the initial Waste proposal was announced, as
well as the maximum and minimum price per share of Republic
common stock over the previous
12-month
period and various averages of prices for shares of Republic
common stock over periods ranging from 30 days to
1 year. Merrill Lynch advised the Republic board of
directors that, in its view, neither the discounted proposal
price nor the nominal price of $37.00 per share represented a
meaningful premium to the closing price per share of Republic
common stock on June 12, 2008, the last trading day before
the day on which Republic and Allied confirmed that they were
involved in discussions regarding a possible business
combination. Based upon public reports published by Moodys
and Standard and Poors and pro forma credit statistics
analysis, Merrill Lynch also indicated that it may be difficult
for Waste to obtain financing. Republics legal counsel and
financial advisors discussed with the Republic board of
directors certain aspects of Wastes revised proposal that
failed to satisfactorily address issues raised by the Republic
board of directors in its response to the first Waste proposal,
including its assessment that the Waste proposal will involve
56
significant additional regulatory complexities and delays
compared to the merger with Allied, the fact that Waste has not
obtained customary financing commitments for the cash needed to
complete its proposed transaction, Wastes condition that
Waste maintains an investment grade rating as a result of the
proposed transaction, and operational issues and additional
contingencies that would result from a protracted delay. After
careful consultation with its legal counsel and financial
advisors and further deliberations among the directors, the
Republic board of directors determined unanimously that the
revised Waste proposal did not constitute, and could not
reasonably be expected to lead to, a proposal for a transaction
that is more favorable to Republic stockholders than the merger
currently contemplated between Republic and Allied. Accordingly,
the Republic board of directors did not change its
recommendation to Republic stockholders regarding the existing
transaction with Allied.
On August 14, 2008, Mr. OConnor sent a letter to
Mr. Steiner relaying the Republic board of directors
determination regarding the revised Waste proposal. Republic
also issued a press release, including
Mr. OConnors letter, reiterating that Republic
was not for sale. The press release noted that the revised Waste
proposal substantially undervalued Republic and failed to
satisfactorily address the issues identified by the Republic
board of directors in its response to the first Waste proposal.
The letter stated that the Republic board of directors believed
that the revised Waste proposal remained substantially more
conditional than the merger with Allied. The letter stressed
that as a result of the determination by the Republic board of
directors and in accordance with Republics obligations
under the terms of the merger agreement with Allied, Republic
may not furnish information to, or have discussions and
negotiations with, Waste.
On August 15, 2008, Waste issued a press release expressing
its disappointment with the determination by the Republic board
of directors and stating that it was evaluating its options.
On August 15, 2008, the class action filed by the New
Jersey Carpenters was amended, primarily to include claims about
deficient disclosures in the preliminary joint proxy
statement/prospectus filed on August 1, 2008 by Republic,
and to claim breach of fiduciary duties by the individual
members of the Republic board for failure to accept Wastes
revised proposal or to enter into discussions with Waste.
On August 18, 2008, Republic issued a press release
announcing that Bank of America Securities LLC and
J.P. Morgan Securities Inc. had arranged a syndicate of
lenders committed in writing to the entire amount of
Republics proposed new $1.75 billion senior unsecured
revolving credit facility. Republic noted that the new credit
facility, together with Republics existing $1 billion
senior unsecured revolving credit facility, will provide
Republic with all of the financing expected to be needed to
consummate its proposed merger with Allied, as well as with
additional working capital.
On August 18, 2008, Cascade and the Gates Foundation Trust
filed a Schedule 13D/A to report that between
August 5, 2008 and August 12, 2008, Cascade purchased
for cash, in open market transactions, additional shares of
Republic common stock which increased their aggregate holdings
to approximately 18% of the outstanding common stock of Republic.
On August 21, 2008, a second putative class action was
filed in the Court of Chancery of the State of Delaware by David
Shade against Republic, the members of the Republic board of
directors, individually, and Allied. On September 22, 2008,
the New Jersey Carpenters and the Shade cases were
consolidated by the Court of Chancery, and on September 24,
2008, the plaintiffs in the Delaware case, now known as In Re:
Republic Services Inc. Shareholders Litigation, filed a verified
consolidated amended class action complaint in the Court of
Chancery of the State of Delaware. Discovery in the Delaware
case is ongoing.
On September 5, 2008, a putative class action was filed in
the Circuit Court in and for Broward County, Florida, by the
Teamsters Local 456 Annuity Fund against Republic and the
members of the Republic board of directors, individually. On
September 24, 2008, the defendants in the Florida
litigation filed a Motion to Stay or to Dismiss the lawsuit in
light of the consolidated Delaware class action.
These suits primarily seek to enjoin the proposed transaction
between Republic and Allied and compel Republic to accept the
unsolicited proposals made by Waste, or at least compel the
Republic board of directors to further consider and evaluate the
Waste proposals, as well as damages and attorneys fees.
57
On September 16, 2008, Mr. Steiner made an unsolicited
call to Mr. OConnor in which he indicated that Waste
was still interested in acquiring Republic, that the Waste board
of directors would meet the following week and that
Mr. Steiner would be contacting Republic again in about a
week. On September 25, 2008, Mr. Steiner again called
Mr. OConnor. In that call, Mr. Steiner said that
Waste continued to be interested in acquiring Republic, and
while he thought financing was available he acknowledged that
the current credit market environment made acquisition debt more
expensive and a transaction less attractive to Waste.
Mr. Steiner indicated that Waste would continue to monitor
the credit market and other conditions impacting a possible
acquisition of Republic, and may further communicate with
Republic as Waste continues to evaluate its options in advance
of Republics expected mid-November stockholder meeting.
Mr. Steiner stated that Waste would continue to pursue
clearance of its antitrust filing with the Department of
Justice. Mr. Steiner also expressed an interest in buying
any assets that would be divested as a result of a
Republic-Allied combination, if the Republic-Allied merger went
forward.
On September 22, 2008, Cascade and the Gates Foundation
Trust filed a Schedule 13D/A to report that between
August 13, 2008 and September 18, 2008, Cascade
purchased for cash, in open market transactions, additional
shares of Republic common stock which increased their aggregate
holdings to approximately 19% of the outstanding common stock of
Republic.
On October 6, 2008, the Circuit Court in the Florida
litigation ordered full briefing on the Motion to Stay or
Dismiss and a hearing on the Motion is set for October 31,
2008. No further activity in the Florida litigation was allowed
by the Circuit Court pending the hearing. However, the Circuit
Court ordered, in the interim, defendants to provide the Florida
plaintiff with copies of any discovery produced to plaintiffs in
the Delaware action.
Rationale
for the Merger
The solid waste service industry has been consolidating over
time and both Republic and Allied believe that the proposed
merger will provide their respective stockholders with an
interest in a combined company that will be one of the strongest
in the industry. The combined company will have greater
financial strength, operational efficiencies, earning power and
growth potential than either Republic or Allied would have on
its own. The parties have identified a number of potential
benefits of the merger which they believe will contribute to the
success of the combined company and thus inure to the benefit of
the combined companys stockholders, including the
following:
Strategic Benefits. Both Republic and Allied
are engaged in the non-hazardous solid waste and environmental
service business and provide solid waste management services,
consisting of collection, transfer, recycling and disposal
(landfill) services to municipal, commercial, industrial and
residential customers. Republic, after the merger, expects to
generate annual revenues of approximately $9 billion and
expects to operate approximately 218 landfills, 254
transfer stations, 427 collection companies and 86 recycling
facilities serving over 13 million customers in
40 states and Puerto Rico. The parties believe that there
is a substantial strategic fit between the markets served by
Republic, which are located predominantly in high-growth Sunbelt
markets, and those served by Allied, which has a national
footprint. Since Republic and Allieds collection
operations are highly complementary, the combined company will
be diversified across geographic markets, customer segments and
service offerings. This balance will enable the combined company
to capitalize on attractive business opportunities, mitigate
geographic risk and result in greater stability and
predictability of revenue and free cash flow.
Strong Financial Foundation. Key components of
the combined companys financial strategy will include its
ability to generate free cash flow and sustain or improve its
return on invested capital. The parties expect that the combined
company will generate significant free cash flow, which it
intends to use to reduce debt, invest in internal growth and
fund its quarterly dividend, which it expects to at least
maintain at $.19 per share. In addition, it is anticipated that
the strong capital structure of the combined company will enable
it to maintain its investment grade rating, resulting in better
access to capital and lower debt financing costs. Republic and
Allied believe that this strong foundation for future financial
performance will create significant benefits for stockholders of
the combined company.
58
Synergies and Cost Savings of the Combined
Company. Republic and Allied believe that the
merger should result in a number of important synergies,
primarily from achieving greater operating efficiencies,
capturing inherent economies of scale and leveraging corporate
resources. The management of Republic estimated that the
combined company would achieve approximately $150 million
in net annual synergies by the third year following the
completion of the merger, and has the potential to achieve
additional synergies thereafter from other initiatives,
including national accounts programs and centralized
procurement. The management of Allied estimated additional
potential synergies of up to $39 million could be achieved
if the combined company were to adopt certain Allied
initiatives. Any synergies achieved will further enhance the
free cash flow and return on invested capital of the combined
company.
Strengthened Management. The parties believe
the combined company will have a favorable personnel mix. In
particular, the parties believe that certain of the members of
Allieds management would complement Republics
existing management team and that the combined companys
management would enjoy a combination of skills and capabilities
that are needed by a company in a consolidating industry. In
addition, each of Republic and Allied believes that by combining
best practices and creating standardized policies, procedures
and measurement tools, the combined company will be better able
to meet and exceed its customers needs.
New Growth Opportunities. Republics
long-term growth strategy has been to increase revenue, gain
market share and enhance stockholder value through internal
growth and acquisitions. The combined company will be able to
better execute these strategic priorities by investing in the
growth and development of the business. The combined company
will be better positioned to grow organically and pursue
acquisition opportunities by being able to draw upon the
resources, experience and development efforts of both Republic
and Allied.
Republic
Reasons for the Merger
In approving the transaction and making these recommendations,
the Republic board of directors consulted with Republics
management, as well as its outside legal and financial advisors,
and it carefully considered the following factors:
|
|
|
|
|
all the reasons described above under
Rationale for the Merger beginning on
page 58, including the strategic benefits, the near- and
longer-term synergies and growth opportunities expected to be
available to the combined company and the ability to create a
leading environmental services firm;
|
|
|
|
information concerning the business, assets, capital structure,
financial performance and condition and prospects of each of
Republic and Allied, focusing in particular on the quality of
Allieds assets, the compatibility of the two
companies operations and opportunities to capture
substantial synergies, which are expected by management of
Republic to be approximately $150 million by the third year
following the completion of the merger;
|
|
|
|
the likelihood of the enhancement of the strategic position of
the combined company, which combines Republics and
Allieds complementary businesses and creates a broader
company with enhanced operational and financial flexibility and
increased opportunities for earnings per share and cash flow
growth;
|
|
|
|
current and historical prices and trading information with
respect to each of Republics and Allieds common
stock, which assisted the Republic board of directors in its
conclusion that the merger was fairly priced;
|
|
|
|
the possibility, as alternatives to the merger, of continuing to
pursue the companys current growth strategy, and the
Republic board of directors conclusion that a merger with
Allied is expected to yield greater benefits for Republic and
its stockholders. The Republic board of directors reached this
conclusion for reasons including Allieds interest in
pursuing a transaction with Republic, Republics view that
the transaction could be acceptably completed from a timing and
regulatory standpoint, and Republic managements assessment
of the expected benefits of the merger and compatibility of the
two companies;
|
|
|
|
current industry, economic and market conditions, including the
pace of change and opportunities for growth in the non-hazardous
solid waste industry;
|
59
|
|
|
|
|
the terms and conditions of the merger agreement;
|
|
|
|
the fact that Republic stockholders would hold approximately 48%
of the outstanding shares of the combined company after the
merger on a diluted basis;
|
|
|
|
the analyses and presentation prepared by Merrill Lynch and its
opinion, dated as of June 22, 2008, that, as of that date,
based upon the assumptions made, procedures followed, matters
considered and qualifications and limitations on the review, set
forth in its opinion, the exchange ratio provided for in the
merger was fair from a financial point of view to Republic.
Merrill Lynchs opinion dated June 22, 2008 is
described in detail below under the heading
Opinion of Financial Advisor to the Republic
Board of Directors beginning on page 64;
|
|
|
|
that, upon completion of the merger, Mr. OConnor will
be the Chief Executive Officer of the combined company and
Mr. Holmes will be the Chief Financial Officer of the
combined company, and that, upon completion of the merger,
Mr. OConnor will be the Chairman of the Board of the
combined company; and
|
|
|
|
that current Republic directors, including
Mr. OConnor, will represent a majority of the
combined companys board of directors and current Republic
directors will represent a majority of each of the key board
committees of the combined company and chair each of these
committees.
|
In addition to the factors described above, the Republic board
of directors identified and considered a variety of risks and
potentially negative factors concerning the merger, including:
|
|
|
|
|
the challenges of combining the businesses of two corporations
of this size and the attendant risks of not achieving the
expected strategic benefits, cost savings, other financial and
operating benefits or improvement in earnings, and of diverting
management focus and resources from other strategic
opportunities and from operational matters for an extended
period of time;
|
|
|
|
that, while the merger is likely to be completed, there are
risks associated with obtaining necessary approvals on terms
that satisfy closing conditions to the respective parties
obligations to complete the merger, and, as a result of certain
conditions to the completion of the merger, it is possible that
the merger may not be completed even if approved by stockholders
(see The Merger Agreement Conditions to
Completion of the Merger beginning on page 119);
|
|
|
|
that while the termination payment provisions of the merger
agreement were reasonable in light of the potential size and
benefits of the transaction and were not preclusive of a
superior transaction, they could have the effect of discouraging
bona fide alternative proposals for a business combination with
Republic (See The Merger Agreement Termination
of the Merger Agreement beginning on page 120);
|
|
|
|
the risk that Allied has liabilities which were not identified
during Republics due diligence; and
|
|
|
|
various other risks associated with the merger and
Republics business set forth under the section entitled
Risk Factors.
|
In view of the number and wide variety of factors considered in
connection with its evaluation of the merger and the complexity
of these matters, the Republic board of directors did not find
it practicable to, nor did it attempt to, quantify, rank or
otherwise assign relative weights to the specific factors that
it considered. In addition, the Republic board of directors did
not undertake to make any specific determination as to whether
any particular factor was favorable or unfavorable to the
Republic board of directors ultimate determination or
assign any particular weight to any factor, but conducted an
overall analysis of the factors described above, including
thorough discussions with and questioning of Republics
management and managements analysis of the proposed merger
based on information received from Republics legal,
financial and accounting advisors. In considering the factors
described above, individual members of the Republic board of
directors may have given different weight to different factors.
In considering the recommendation of the Republic board of
directors with respect to the proposal to issue shares of
Republic common stock pursuant to the merger, you should be
aware that certain Republic
60
directors and officers have arrangements that may cause them to
have interests in the transaction that are different from, or
are in addition to, the interests of Republic stockholders
generally. See Interests of Republic Executive Officers
and Directors in the Merger beginning on page 70.
The Republic board of directors considered all these factors
together and considered them in their totality to be favorable
to, and to support, its determination to recommend approval by
Republic stockholders of the proposals necessary to complete the
merger.
Recommendations
of the Republic Board of Directors
The Republic board of directors has unanimously determined that
the Republic share issuance is advisable and in the best
interests of Republic and its stockholders. The Republic board
of directors recommends that Republic stockholders vote:
|
|
|
|
|
FOR the Republic share issuance; and
|
|
|
|
FOR the adjournment of the special meeting,
if necessary, to solicit additional proxies in favor of the
foregoing proposal.
|
Certain
Financial Forecasts Reviewed by the Republic Board of
Directors
Republic does not, as a matter of course, publicly disclose
forecasts or internal projections as to future performance,
earnings or other results. In connection with discussions
concerning the proposed transaction, the management of Republic,
with its financial advisor, prepared and furnished to the
management of Allied and UBS two financial forecasts for
Republic. The Republic base case forecast is presented below and
was used by Merrill Lynch for purposes of its opinion regarding
the exchange ratio. The other Republic forecast was used by
Allieds financial advisor as described under
Certain Financial Forecasts Reviewed by the
Allied Board of Directors. The inclusion of such financial
forecasts in this joint proxy statement/prospectus should not be
regarded as an indication that Republic or its board of
directors considered, or now considers, these forecasts to be
material to a stockholder or a reliable predictor of future
results. You should not place undue reliance on the financial
forecasts contained in this joint proxy statement/prospectus.
Please read carefully Important Information
about the Financial Forecasts below.
Republic
Financial Forecast
Republics management prepared and provided the following
information to the Republic board of directors and Merrill Lynch
regarding Republics base case forecasted operating results
for 2008 through 2012. Early each calendar year, Republic
management finalizes a three year financial forecast, which is
the only long-term financial forecast regularly prepared by
Republic. These forecasts are used primarily to establish
financial targets for Republics long-term incentive plan.
The forecast is based upon managements evaluation of
macroeconomic trends at the time it is prepared. The economic
factors that management believes are most relevant for purposes
of this forecast include population growth, household formation
and related business growth. After analyzing this economic data
in late 2007 and early 2008, Republics management
determined that long-term annual revenue growth of approximately
4% would be an appropriate assumption for the forecast that was
being prepared at that time. In April, solely for the purpose of
Republics analysis of a potential transaction with Allied,
this forecast was extrapolated to add two additional years, and
that five year
61
forecast is Republics base case financial forecast
presented to the Republic board of directors and used by Merrill
Lynch for purposes of its opinion.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended December 31,
|
|
(Dollars in millions)
|
|
2008E
|
|
|
2009E
|
|
|
2010E
|
|
|
2011E
|
|
|
2012E
|
|
|
Revenue
|
|
$
|
3,284
|
|
|
$
|
3,393
|
|
|
$
|
3,529
|
|
|
$
|
3,670
|
|
|
$
|
3,817
|
|
% Growth
|
|
|
|
|
|
|
3.3
|
|
|
|
4.0
|
|
|
|
4.0
|
|
|
|
4.0
|
|
EBITDA(1)
|
|
|
937
|
|
|
|
984
|
|
|
|
1,031
|
|
|
|
1,079
|
|
|
|
1,122
|
|
% Margin
|
|
|
28.5
|
|
|
|
29.0
|
|
|
|
29.2
|
|
|
|
29.4
|
|
|
|
29.4
|
|
% Growth
|
|
|
|
|
|
|
5.0
|
|
|
|
4.7
|
|
|
|
4.7
|
|
|
|
4.0
|
|
Depletion, Depreciation and Amortization
|
|
|
328
|
|
|
|
333
|
|
|
|
346
|
|
|
|
360
|
|
|
|
374
|
|
% of Revenue
|
|
|
10.0
|
|
|
|
9.8
|
|
|
|
9.8
|
|
|
|
9.8
|
|
|
|
9.8
|
|
Capital Expenditures
|
|
|
(327
|
)
|
|
|
(350
|
)
|
|
|
(339
|
)
|
|
|
(374
|
)
|
|
|
(361
|
)
|
|
|
|
(1) |
|
EBITDA is net income before interest expense, income taxes, and
depletion, depreciation and amortization. |
Allied
Financial Forecast
Republics management provided the following information to
the Republic board of directors and Merrill Lynch regarding
Allieds forecasted operating results for 2008 through
2012. This financial forecast was based on a projection prepared
by Allied and submitted to Republic, which was adjusted by
Republic to reflect annual revenue growth rates and EBITDA
margins consistent with Republic management projections
reflected in its base case forecast above. Allieds
projections assumed an annual revenue growth approximating 5%.
The Allied projection provided to Republic is set forth in
Certain Financial Forecasts Reviewed by the Allied Board
of Directors on page 75. Republics management
and the Republic board of directors believed that assumptions
about market conditions and economic factors that were used in
determining both Republics and Allieds long-term
annual revenue growth and EBITDA margins should be similar for
purposes of comparing and analyzing financial forecasts,
particularly as the companies operate in the same industry and
face the same economic conditions. Therefore, Republic adjusted
Allieds projections to reflect the lower growth rates and
EBITDA margins assumed for Republics base case forecast.
The Republic board of directors was advised that the growth
rates and EBITDA margins used for the five year financial
forecasts presented to the Republic board of directors were
consistent with the growth rates and EBITDA margins used for
Republics most recent regularly prepared three year
financial forecast, and was also advised that the financial
forecast prepared by Allied had a higher long-term growth rate
and higher EBITDA margins and that Republic management adjusted
that financial forecast to conform it to the lower long-term
growth rate and lower EBITDA margins used by Republic for its
financial forecast. At its June 22, 2008 meeting, the
Republic board of directors did not consider what impact the
second set of forecasts used by Allied would be likely to have
on financial analyses which may have been performed in reliance
on such other forecasts. The financial forecasts using the lower
growth assumptions were also used for the joint presentations by
Republic and Allied to the credit ratings agencies on
June 4, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended December 31,
|
|
(Dollars in millions)
|
|
2008E
|
|
|
2009E
|
|
|
2010E
|
|
|
2011E
|
|
|
2012E
|
|
|
Revenue
|
|
$
|
6,268
|
|
|
$
|
6,477
|
|
|
$
|
6,736
|
|
|
$
|
7,005
|
|
|
$
|
7,285
|
|
% Growth
|
|
|
|
|
|
|
3.3
|
|
|
|
4.0
|
|
|
|
4.0
|
|
|
|
4.0
|
|
EBITDA(1)
|
|
|
1,760
|
|
|
|
1,878
|
|
|
|
1,967
|
|
|
|
2,059
|
|
|
|
2,142
|
|
% Margin
|
|
|
28.1
|
|
|
|
29.0
|
|
|
|
29.2
|
|
|
|
29.4
|
|
|
|
29.4
|
|
% Growth
|
|
|
6.7
|
|
|
|
6.7
|
|
|
|
4.7
|
|
|
|
4.7
|
|
|
|
4.0
|
|
Depletion, Depreciation and Amortization
|
|
|
576
|
|
|
|
584
|
|
|
|
599
|
|
|
|
632
|
|
|
|
667
|
|
% of Revenue
|
|
|
9.2
|
|
|
|
9.0
|
|
|
|
8.9
|
|
|
|
9.0
|
|
|
|
9.2
|
|
Capital Expenditures
|
|
|
(650
|
)
|
|
|
(701
|
)
|
|
|
(736
|
)
|
|
|
(773
|
)
|
|
|
(812
|
)
|
62
|
|
|
(1) |
|
EBITDA is net income before interest expense, income taxes, and
depletion, depreciation and amortization. |
Use of
Financial Forecasts
Republic used the foregoing financial forecasts in evaluating
the exchange ratio. As noted above, two financial forecasts were
prepared by the management of Republic and provided to UBS. The
Republic base case forecast used by Merrill Lynch for purposes
of its opinion differs from the Republic forecast used by UBS
for purposes of its opinion. The Republic base case forecast
used by Merrill Lynch, at the direction of the Republic board of
directors, reflects lower growth assumptions that are consistent
with the macroeconomic trends projected by the management of
Republic in connection with the Republic long-term incentive
plan. In addition, the Allied financial analyses and forecasts
prepared by management of Allied were adjusted by management of
Republic to reflect the same macroeconomic trends and growth
assumptions incorporated into the base case forecast of
Republic. At the direction of the Republic board of directors,
such Allied forecasts, as adjusted, were used by Merrill Lynch
for purposes of its analyses and opinion.
Important
Information about the Financial Forecasts
While the financial forecasts summarized above were prepared in
good faith, no assurance can be made regarding future events.
The estimates and assumptions underlying the financial forecasts
involve judgments with respect to, among other things, future
economic, competitive, regulatory and financial market
conditions and future business decisions that may not be
realized and that are inherently subject to significant
business, economic, competitive and regulatory uncertainties and
contingencies, including, among others, risks and uncertainties
described in Risk Factors and Cautionary
Statement Regarding Forward-Looking Statements, all of
which are difficult to predict and many of which are beyond the
control of Republic and will be beyond the control of the
combined company. There can be no assurance that the underlying
assumptions will prove to be accurate or that the projected
results will be realized, and actual results likely will differ,
and may differ materially, from those presented in the financial
forecasts, even if the merger is not completed. Such financial
forecasts cannot, therefore, be considered a reliable predictor
of future operating results, and this information should not be
relied on as such.
The financial forecasts summarized in this section were prepared
solely for internal use and not with a view toward public
disclosure or with a view toward complying with the guidelines
established by the American Institute of Certified Public
Accountants for preparation and presentation of prospective
financial data, published guidelines of the SEC regarding
forward-looking statements, or U.S. generally accepted
accounting principles. In the view of Republics
management, the financial forecasts prepared by Republic were
prepared on a reasonable basis. However, the financial forecasts
are not fact and should not be relied upon as being necessarily
indicative of future results, and readers of this joint proxy
statement/prospectus are cautioned not to place undue reliance
on this information. None of the financial forecasts reflect any
impact of the proposed merger.
The Republic financial forecasts included in this joint proxy
statement/prospectus were prepared by and are the responsibility
of the management of Republic, as indicated. Neither
Ernst & Young LLP nor PricewaterhouseCoopers LLP has
examined, compiled or otherwise performed any procedures with
respect to the prospective financial information contained in
these financial forecasts and, accordingly, neither
Ernst & Young LLP nor PricewaterhouseCoopers LLP has
expressed any opinion or given any other form of assurance with
respect thereto and they assume no responsibility for the
prospective financial information. The Ernst & Young
LLP report incorporated by reference in this joint proxy
statement/prospectus relates to Republics historical
financial information. It does not extend to the financial
forecasts and should not be read to do so. The
PricewaterhouseCoopers LLP reports incorporated by reference in
this joint proxy statement/prospectus relate to Allieds
historical financial information. They do not extend to the
financial forecasts and should not be read to do so.
By including in this joint proxy statement/prospectus a summary
of certain Republic financial forecasts, neither Republic nor
any of its representatives has made or makes any representation
to any person regarding
63
the ultimate performance of Republic compared to the information
contained in the financial forecasts. The financial forecasts
were prepared in June of 2008 and have not been updated to
reflect any changes since that date. Neither Republic nor,
following the merger, the combined company undertakes any
obligation, except as required by law, to update or otherwise
revise the financial forecasts or financial information to
reflect circumstances existing since their preparation or to
reflect the occurrence of unanticipated events, even in the
event that any or all of the underlying assumptions are shown to
be in error, or to reflect changes in general economic or
industry conditions.
The summary of the financial forecasts is not included in this
joint proxy statement/prospectus in order to induce any
stockholder to vote in favor of any of the proposals to be voted
on at the Republic special meeting, as described in this joint
proxy statement/prospectus.
Opinion
of Financial Advisor to the Republic Board of
Directors
On May 14, 2008, the Republic board of directors engaged
Merrill Lynch to act as its financial advisor in connection with
the proposed merger. On June 22, 2008, Merrill Lynch
rendered to the Republic board of directors its oral opinion,
subsequently confirmed by delivery of a written opinion dated
June 22, 2008, that, as of that date and based upon and
subject to the assumptions made, matters considered and
qualifications and limitations set forth in the written opinion,
the exchange ratio in the proposed merger of .45 shares of
Republic common stock for each share of Allied common stock
provided for in the merger agreement was fair from a financial
point of view to Republic.
The full text of Merrill Lynchs written opinion, which
sets forth the assumptions made, matters considered and
qualifications and limitations on the review undertaken by
Merrill Lynch, is attached as Annex C to this joint proxy
statement/prospectus and is incorporated herein by reference.
The following summary of Merrill Lynchs opinion is
qualified in its entirety by reference to the full text of the
opinion. The holders of Republic common stock are encouraged to
read the opinion carefully in its entirety. Merrill Lynchs
opinion was provided for the use and benefit of the Republic
board of directors, is directed only to the fairness, from a
financial point of view, of the exchange ratio to Republic, and
does not address the fairness to, or any other consideration of,
the holders of any class of securities, creditors or other
constituencies of Republic. Merrill Lynchs opinion does
not constitute a recommendation to any holder of Republic common
stock as to how that stockholder should vote on the proposed
merger or any related matter. In rendering its opinion, Merrill
Lynch expressed no view or opinion with respect to the fairness
(financial or otherwise) of the amount or nature or any other
aspect of any compensation payable to or to be received by an
officers, directors, or employees of any party to the merger, or
any class of such persons, relative to the exchange ratio.
Merrill Lynch has consented to the inclusion in this joint proxy
statement/prospectus of its written opinion and of the summary
of that opinion set forth below.
In arriving at its opinion, Merrill Lynch, among other things:
|
|
|
|
|
reviewed certain publicly available business and financial
information relating to Allied and Republic that Merrill Lynch
deemed to be relevant;
|
|
|
|
reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets,
liabilities and prospects of Allied and Republic, including
financial analyses and forecasts relating to Republic prepared
by management of Republic, and financial analyses and forecasts
relating to Allied prepared by management of Allied and adjusted
by management of Republic to reflect the macroeconomic trends
incorporated into the forecasts of Republic, as well as the
amount and timing of the cost savings and related expenses and
synergies expected to result from the merger, which are referred
to as the expected synergies, furnished to Merrill Lynch by
Republic;
|
|
|
|
conducted discussions with members of senior management and
representatives of Allied and Republic concerning the matters
described in the preceding two bullet points, as well as their
respective businesses and prospects before and after giving
effect to the merger and the expected synergies;
|
64
|
|
|
|
|
reviewed the market prices and valuation multiples for
Allieds common stock and Republics common stock and
compared them with those of certain publicly traded companies
that Merrill Lynch deemed to be relevant;
|
|
|
|
reviewed the results of operations of Allied and Republic and
compared them with those of certain publicly traded companies
that Merrill Lynch deemed to be relevant;
|
|
|
|
compared the proposed financial terms of the merger with the
financial terms of certain other transactions that Merrill Lynch
deemed to be relevant;
|
|
|
|
participated in certain discussions and negotiations among
representatives of Allied and Republic and their financial and
legal advisors;
|
|
|
|
reviewed the potential pro forma impact of the merger;
|
|
|
|
reviewed a draft dated June 21, 2008, of the merger
agreement; and
|
|
|
|
reviewed such other financial studies and analyses and took into
account such other matters as Merrill Lynch deemed necessary,
including its assessment of general economic, market and
monetary conditions.
|
In preparing its opinion, Merrill Lynch assumed and relied on
the accuracy and completeness of all information supplied or
otherwise made available to it, discussed with or reviewed by or
for it, or publicly available, and Merrill Lynch did not assume
any responsibility for independently verifying such information
or undertake an independent evaluation or appraisal of any of
the assets or liabilities of Allied or Republic, nor did it
evaluate the solvency or fair value of Allied or Republic under
any state or federal laws relating to bankruptcy, insolvency or
similar matters. In addition, Merrill Lynch did not assume any
obligation to conduct any physical inspection of the properties
or facilities of Allied or Republic.
With respect to the financial forecast information, the expected
synergies and any other estimates or pro forma effects furnished
to or discussed with Merrill Lynch by Allied or Republic,
Merrill Lynch assumed that they had been reasonably prepared and
reflected the best currently available estimates and judgment of
Allieds or Republics management, as the case may be,
as to the matters covered thereby. With respect to the expected
synergies, Merrill Lynch assumed, with the consent of the
Republic board of directors, that the expected synergies would
be realized in the amounts and time periods forecasted by
Republic. In addition, based on Merrill Lynchs discussions
with Republics management and at its direction, Merrill
Lynch assumed that the financial forecasts of Allied prepared by
its management and adjusted by management of Republic were a
reasonable basis upon which to evaluate the future performance
of Allied, and that Republic financial forecasts provided to
Merrill Lynch by management of Republic were a reasonable basis
upon which to evaluate the future performance of Republic, and
therefore Merrill Lynch used those financial forecasts for
purposes of Merrill Lynchs analyses and opinion. Merrill
Lynch further assumed that the merger would qualify as a
tax-free reorganization for U.S. federal income tax
purposes and that the final form of the merger agreement would
be substantially similar to the last draft reviewed by it.
Merrill Lynchs opinion is necessarily based upon market,
economic and other conditions as they existed and could be
evaluated on, and on the information made available to Merrill
Lynch as of the date of the opinion. Merrill Lynch assumed that
in the course of obtaining the necessary regulatory or other
consents or approvals (contractual or otherwise) for the merger,
no restrictions, including any divestiture requirements or
amendments or modifications, would be imposed that would have a
material adverse effect on the contemplated benefits of the
merger. Merrill Lynch also assumed, in all respects material to
its analyses, that each party to the merger agreement would
comply with all material terms of the merger agreement and that
the merger will be consummated in accordance with its terms,
without the waiver, modification or amendment of any material
term, condition or agreement.
The following is a summary of the material financial analyses
presented by Merrill Lynch to the Republic board of directors in
connection with the rendering of its opinion. The financial
analyses summarized below include information presented in
tabular format. In order to understand fully the financial
analyses performed by Merrill Lynch, the tables must be read
together with the accompanying text of each
65
summary. The tables alone do not constitute a complete
description of the financial analyses, and if viewed in
isolation could create a misleading or incomplete view of the
financial analyses performed by Merrill Lynch. To the extent the
following quantitative information reflects market data, except
as otherwise indicated, Merrill Lynch based this information on
market data as it existed prior to June 22, 2008. This
information, therefore, does not necessarily reflect current or
future market conditions.
In preparing its opinion to the Republic board of directors,
Merrill Lynch performed various valuation, financial and
comparative analyses, including those described below. The
summary set forth below does not purport to be a complete
description of the analyses underlying Merrill Lynchs
opinion or the presentations made by Merrill Lynch to the
Republic board of directors. The preparation of a fairness
opinion is a complex analytical process involving various
determinations as to the most appropriate and relevant methods
of financial analysis and the application of those methods to
the particular circumstances and, therefore, a fairness opinion
is not readily susceptible to partial analysis or summary
description. In arriving at its opinion, Merrill Lynch did not
attribute any particular weight to any analysis or factor
considered by it, but rather made its determination as to
fairness on the basis of its experience and professional
judgment after considering the results of all of its analyses.
Accordingly, Merrill Lynch believes that its analyses must be
considered as a whole and that selecting portions of its
analyses and factors, or focusing on information presented in
tabular format, without considering all of the analyses and
factors or the narrative description of the analyses, would
create a misleading or incomplete view of the process underlying
its opinion.
Calculation
of Transaction Value
Merrill Lynch reviewed the financial terms of the merger.
Merrill Lynch noted that Allied stockholders will be entitled to
receive .45 shares of Republic common stock for each share
of Allied common stock. The merger consideration therefore had
an implied offer price of $15.15 per share of Allied common
stock based upon the closing price of Republic common stock of
$33.66 on June 12, 2008, the last trading day before the
day on which Republic and Allied confirmed that they were
involved in discussions regarding a possible business
combination. Accounting for the assumption of projected net debt
as of December 31, 2008, Merrill Lynch noted that the
merger would have a transaction value of just over
$13 billion.
Summary
Table
Merrill Lynch performed a number of financial analyses,
including a historical trading performance analysis, a research
analysts price target analysis, a comparable companies
analysis, and a discounted cash flow analysis, which are
described below. The following summary table sets out the
maximum range of exchange ratios implied from each of these
financial analyses, which were compared to the transaction
exchange ratio of .45 pursuant to the merger agreement and the
unaffected exchange ratio of .414 that existed based on the two
companies closing stock prices on June 12, 2008, the
last trading day before the day on which Republic and Allied
confirmed that they were involved in discussions regarding a
possible business combination. The minimum exchange ratio was
calculated for each analysis by dividing the lowest implied
value per share of Allied common stock by the highest implied
value per share of Republic common stock derived from each
analysis. The maximum exchange ratio was calculated for each
analysis by dividing the highest implied value per share of
Allied common stock by the lowest implied value per share of
Republic common stock derived from each analysis.
In applying the various valuation methodologies, Merrill Lynch
made qualitative judgments as to the significance and relevance
of each analysis. Accordingly, the methodologies and implied
exchange ratio ranges derived from these analyses and presented
in this table should be considered as a whole and in the context
of the narrative description of the financial analyses below,
including the methodologies and assumptions underlying these
analyses. Considering the implied exchange ratio ranges
presented in the table without considering the full narrative
description of the financial analyses, including the
methodologies and assumptions underlying these analyses, could
create a misleading or incomplete view of the financial analyses
performed by Merrill Lynch.
66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Implied
|
|
|
|
|
|
Unaffected
|
|
|
|
Exchange
|
|
|
Transaction
|
|
|
Exchange
|
|
Implied Exchange Ratio Analysis
|
|
Ratio
|
|
|
Exchange Ratio
|
|
|
Ratio
|
|
|
Historical trading performance
|
|
|
.254 .518
|
|
|
|
.450
|
|
|
|
.414
|
|
Research analysts price targets
|
|
|
.375 .563
|
|
|
|
.450
|
|
|
|
.414
|
|
Comparable companies enterprise value to EBITDA
multiple
|
|
|
.371 .573
|
|
|
|
.450
|
|
|
|
.414
|
|
Comparable companies price to earnings multiple
|
|
|
.402 .546
|
|
|
|
.450
|
|
|
|
.414
|
|
Discounted cash flows
|
|
|
.395 .693
|
|
|
|
.450
|
|
|
|
.414
|
|
Historical
Trading Performance
Merrill Lynch reviewed historical trading prices of Allied
common stock. This review indicated that for the 52-week period
ending June 12, 2008, Allied common stock traded as low as
$8.88 and as high as $14.13 per share. These trading prices were
compared to the closing price of Allied common stock of $13.92
on June 12, 2008, the last trading day before the day on
which Republic and Allied confirmed that they were involved in
discussions regarding a possible business combination, and the
implied offer price of $15.15 per share of Allied common stock
derived from the exchange ratio of .45 provided for in the
merger agreement and the closing price of Republic common stock
on June 12, 2008.
Merrill Lynch reviewed historical trading prices of Republic
common stock. This review indicated that for the 52-week period
ending June 12, 2008, Republic common stock traded as low
as $27.30 and as high as $35.00 per share. These trading prices
were compared to the closing price of Republic common stock of
$33.66 on June 12, 2008, the last trading day before the
day on which Republic and Allied confirmed that they were
involved in discussions regarding a possible business
combination.
Merrill Lynch then reviewed the range of historical trading
prices of Allied and Republic common stock and calculated the
maximum range of exchange ratios implied from such historical
trading performance. This analysis yielded a range for the
implied exchange ratio of .254 to .518, which Merrill Lynch
compared to the transaction exchange ratio of .45 pursuant to
the merger agreement and the unaffected exchange ratio of .414
that existed based on the two companies closing stock
prices on June 12, 2008, the last trading day before the
day on which Republic and Allied confirmed that they were
involved in discussions regarding a possible business
combination.
Research
Analysts Price Targets
Merrill Lynch reviewed the most recent research analysts
per share target prices for Allied and Republic common stock
according to Bloomberg as of June 12, 2008, the last
trading day before the day on which Republic and Allied
confirmed that they were involved in discussions regarding a
possible business combination. For Allied common stock, the
research analysts per share target prices ranged from
$15.00 to $18.00, as compared to the closing price of Allied
common stock of $13.92 on June 12, 2008, and the implied
offer price of $15.15 per share of Allied common stock. For
Republic common stock, the research analysts per share
target prices ranged from $32.00 to $40.00, as compared to the
closing price of Republic common stock of $33.66 on
June 12, 2008.
Merrill Lynch then reviewed the range of research analysts
target prices for Allied and Republic common stock and
calculated the maximum range of exchange ratios implied from
such target prices. This analysis yielded a range for the
implied exchange ratio of .375 to .563, which Merrill Lynch
compared to the transaction exchange ratio of .45 pursuant to
the merger agreement and the unaffected exchange ratio of .414
that existed based on the two companies closing stock
prices on June 12, 2008, the last trading day before the
day on which Republic and Allied confirmed that they were
involved in discussions regarding a possible business
combination.
67
Comparable
Companies Analysis
Merrill Lynch reviewed and compared selected financial
information and trading statistics for Allied and Republic with
the publicly available corresponding data for certain publicly
traded waste management companies that Merrill Lynch, in its
professional judgment, deemed reasonably comparable to Allied
and Republic, namely, Waste Connections, Inc. and Waste
Management, Inc. Although the foregoing companies were compared
to Allied and Republic for purposes of this analysis, no company
utilized in this analysis is identical to Allied or Republic and
the limited number of companies included in the analysis may
limit its usefulness as a comparative measure. In evaluating the
comparable companies, Merrill Lynch made judgments and
assumptions concerning differences in financial and operating
characteristics of the comparable companies and other factors
that could affect the public trading value of the selected
companies. Estimated financial data for the selected comparable
companies were based on publicly available information and
estimates of future financial results published by Wall Street
research analysts. Estimated financial data for Allied were
based on financial forecasts prepared by Allieds
management, as adjusted by Republics management, and
estimated financial data for Republic were based on financial
forecasts prepared by Republics management.
For Republic, Allied and each comparable company, Merrill Lynch
calculated the following financial ratios: (1) enterprise
value as a multiple of estimated 2008 earnings before interest,
taxes, depreciation and amortization, which is referred to as
EBITDA, (2) enterprise value as a multiple of estimated
2009 EBITDA, (3) stock price as a multiple of estimated
2008 earnings per share and (4) stock price as a multiple
of estimated 2009 earnings per share.
Based upon the analysis of the publicly traded comparable
companies, Merrill Lynch estimated an EBITDA multiple range of
7.0x to 8.0x and a price-to-earnings multiple range of 14.0x to
17.0x for Allied. Based upon the publicly traded comparable
companies analysis, Merrill Lynch estimated an EBITDA multiple
range of 7.5x to 8.5x for Republic and a price-to-earnings
multiple range of 17.0x to 19.0x for Republic.
Merrill Lynch then used the results of the foregoing comparable
companies analysis to calculate the maximum range of implied
exchange ratios derived from the relative ranges of implied
share value for Allied and Republic, by dividing the lowest
implied share value of Allied common stock by the highest
implied share value of Republic common stock and the highest
implied share value of Allied common stock by the lowest implied
share value of Republic common stock. This analysis based upon
the EBITDA multiple ranges yielded a range of implied exchange
ratios from .371 to .573. This analysis based upon the
price-to-earnings multiple ranges yielded a range of implied
exchange ratios from .402 to .546. Merrill Lynch compared these
implied exchange ratio ranges to the transaction exchange ratio
of .45 pursuant to the merger agreement and the unaffected
exchange ratio of .414 that existed based on the two
companies closing stock prices on June 12, 2008, the
last trading day before the day on which Republic and Allied
confirmed that they were involved in discussions regarding a
possible business combination.
Discounted
Cash Flow Analysis
Merrill Lynch performed discounted cash flow analyses of both
Allied and Republic as stand-alone entities to derive a range of
implied equity values for each companys common stock.
Using financial forecasts prepared by Allieds management,
as adjusted by Republics management, Merrill Lynch
calculated a range of implied equity values per share by adding
the present value of Allieds projected free cash flows
through December 31, 2012 and the present value of
Allieds terminal value based on a range of
multiples of Allieds estimated 2012 EBITDA. Using
financial forecasts prepared by Republics management,
Merrill Lynch calculated a range of implied equity values per
share of Republic common stock using the same methodology. As
part of this analysis, Merrill Lynch also analyzed the weighted
average cost of capital of Allied and Republic, which included a
sensitivity analysis of each companys weighted average
cost of capital.
In calculating the terminal value, Merrill Lynch applied
terminal value multiples of estimated 2012 EBITDA ranging from
7.5x to 8.5x. Merrill Lynch selected these terminal value EBITDA
multiples based upon the trading characteristics of the common
stock of the publicly traded comparable companies referred to
above. The free cash flow stream and terminal values were then
discounted back to June 30, 2008, using
68
discount rates ranging from 7.0% to 9.0%. Merrill Lynch selected
these discount rates based on an analysis of the weighted
average cost of capital of the publicly traded companies
referred to above.
Merrill Lynch then used the implied equity value ranges for
Allied and Republic common stock derived from the discounted
cash flow analysis to calculate the maximum range of exchange
ratios implied from those implied equity value ranges. This
analysis yielded a range of implied exchange ratios from .395 to
.693, which Merrill Lynch compared to the transaction exchange
ratio of .45 pursuant to the merger agreement and the unaffected
exchange ratio of .414 that existed based on the two
companies closing stock prices on June 12, 2008, the
last trading day before the day on which Republic and Allied
confirmed that they were involved in discussions regarding a
possible business combination.
Historical
Stock Price and Exchange Ratio Analysis
Merrill Lynch calculated the implied premium that the implied
offer price of $15.15 per share represents over the closing
price of Allied common stock on June 12, 2008, the last
trading day before the day on which Republic and Allied
confirmed that they were involved in discussions regarding a
possible business combination, and the historical average stock
price of Allied common stock for the
10-day,
30-day,
60-day,
90-day,
one-year, two-year and three-year periods ending June 12,
2008. Merrill Lynch also calculated the historical range of
exchange ratios for the same periods ending June 12, 2008,
in comparison to the unaffected exchange ratio that existed
between Allied common stock and Republic common stock on
June 12, 2008. Merrill Lynch then calculated the implied
premium that the .45 exchange ratio represents over the
historical exchange ratios on June 12, 2008, and for the
specified periods ending June 12, 2008. The results of
Merrill Lynchs analysis are set forth in the following
table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allied Stock Price
|
|
|
Exchange Ratio
|
|
|
|
|
|
|
Implied Premium
|
|
|
|
|
|
Implied Premium
|
|
Time Period
|
|
Average
|
|
|
($15.15)
|
|
|
Average
|
|
|
(.450)
|
|
|
As of June 12, 2008
|
|
$
|
13.92
|
|
|
|
8.8
|
%
|
|
|
.414
|
|
|
|
8.8
|
%
|
10-day
average
|
|
|
13.50
|
|
|
|
12.2
|
%
|
|
|
.404
|
|
|
|
11.4
|
%
|
30-day
average
|
|
|
12.97
|
|
|
|
16.8
|
%
|
|
|
.395
|
|
|
|
13.8
|
%
|
60-day
average
|
|
|
12.20
|
|
|
|
24.2
|
%
|
|
|
.386
|
|
|
|
16.6
|
%
|
90-day
average
|
|
|
11.53
|
|
|
|
31.4
|
%
|
|
|
.368
|
|
|
|
22.2
|
%
|
1-year
average
|
|
|
11.95
|
|
|
|
26.7
|
%
|
|
|
.379
|
|
|
|
18.6
|
%
|
2-year
average
|
|
|
12.00
|
|
|
|
26.2
|
%
|
|
|
.408
|
|
|
|
10.4
|
%
|
3-year
average
|
|
|
11.22
|
|
|
|
35.1
|
%
|
|
|
.398
|
|
|
|
13.0
|
%
|
Miscellaneous
In conducting its analyses and arriving at its opinion, Merrill
Lynch utilized a variety of generally accepted valuation
methods. The analyses were prepared for the purpose of enabling
Merrill Lynch to provide its opinion to the Republic board of
directors as to the fairness, from a financial point view, to
Republic of the exchange ratio pursuant to the merger agreement
and do not purport to be appraisals or necessarily to reflect
the prices at which businesses or securities actually may be
sold, which are inherently subject to uncertainty. In connection
with its analyses, Merrill Lynch made, and was provided by the
management of each of Allied and Republic with, numerous
assumptions with respect to industry performance, general
business and economic conditions and other matters, many of
which are beyond the control of Merrill Lynch, Republic or
Allied. Analyses based on estimates or forecasts of future
results are not necessarily indicative of actual past or future
values or results, which may be significantly more or less
favorable than suggested by such analyses. Because such analyses
are inherently subject to uncertainty, being based upon numerous
factors or events beyond the control of Allied, Republic or
their respective advisors, neither Republic nor Merrill Lynch
nor any other person assumes responsibility if future results or
actual values are materially different from these forecasts or
assumptions.
The terms of the merger were determined through negotiations
between Allied and Republic and were approved by the Republic
board of directors. Although Merrill Lynch provided advice to
Republic during the
69
course of these negotiations, the decision to enter into the
merger was solely that of the Republic board of directors. The
opinion and presentation of Merrill Lynch to the Republic board
of directors was only one of a number of factors taken into
consideration by the Republic board of directors in making its
determination to approve and adopt the merger agreement and the
transactions contemplated by the merger agreement, including the
merger. Merrill Lynchs opinion should not be viewed as
determinative of the views of the Republic board of directors or
management with respect to the merger or the transaction
exchange ratio. Merrill Lynchs opinion was provided to the
Republic board of directors to assist it in connection with its
consideration of the merger and does not constitute a
recommendation to any stockholder as to how to vote on the
proposed merger or any related matter. Merrill Lynchs
opinion does not in any manner address the prices at which the
shares of common stock of either Republic or Allied will trade
following the announcement of the merger or the price at which
the shares of common stock of Republic will trade following the
consummation of the merger.
Republic retained Merrill Lynch based upon Merrill Lynchs
experience and expertise. Merrill Lynch is an internationally
recognized investment banking and advisory firm with substantial
experience in transactions similar to the proposed transaction.
Merrill Lynch, as part of its investment banking business, is
regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private
placements and valuations for corporate and other purposes.
Under the terms of its engagement, Republic has agreed to pay
Merrill Lynch a fee of $26.5 million, $2.5 million of
which was payable in connection with the public announcement of
the execution of the merger agreement and $24.0 million of
which is contingent upon the consummation of the merger.
Republic has also agreed to reimburse Merrill Lynch for its
reasonable expenses incurred in connection with this engagement,
including reasonable fees of outside legal counsel, and to
indemnify Merrill Lynch and its affiliates for certain
liabilities arising out of this engagement, including
liabilities under U.S. federal securities laws.
Merrill Lynch has, in the past, provided financial advisory and
financing services to Republic
and/or its
affiliates and may continue to do so. Merrill Lynch has
received, and may receive, fees for the rendering of such
services. In addition, in the ordinary course of its business,
Merrill Lynch or its affiliates may actively trade the common
stock and other securities of Allied, as well as the common
stock of Republic and other securities of Republic, for its own
account and for the accounts of its customers and, accordingly,
may at any time hold a long or short position in such securities.
Interests
of Republic Executive Officers and Directors in the
Merger
In considering the recommendation of the Republic board of
directors with respect to the merger, Republic stockholders
should be aware that executive officers of Republic and members
of the Republic board of directors may have interests in the
transactions contemplated by the merger agreement that may be
different from, or in addition to, the interests of the Republic
stockholders generally. The Republic board of directors was
aware of these interests and considered them, among other
matters, in approving the merger agreement and making its
recommendation. These interests are summarized below.
Board
of Directors and Board Committees
At the effective time of the merger, all non-employee members of
the Republic board of directors, other than Mr. Harris
Hudson, will continue as directors of the combined company. The
board of directors of the combined company initially will be
comprised of the chairman of the board, five
(5) individuals designated by the Republic board and five
(5) individuals designated by the Allied board.
Mr. OConnor, currently the chairman of the board and
chief executive officer of Republic, will continue in those
roles with the combined company. The continuing Republic
directors will hold a majority on each of the audit, nominating
and corporate governance, and compensation committees of the
combined company and the current Republic chairman on each of
those committees will continue in that role in the combined
company. See Board of Directors and Executive
Officers of Republic Following the Merger; Headquarters
beginning on page 92.
70
Republics non-employee directors hold stock units issued
pursuant to Republics 1998 Stock Incentive Plan. All such
stock units are fully vested. Pursuant to the terms of the stock
unit award agreements, and upon consummation of the merger, each
stock unit will be converted into the right to receive a cash
payment equal to the closing price of Republic common stock on
the date of the merger. Stock unit holdings are as follows:
John W. Croghan - 29,693, Harris W. Hudson -
29,693; W. Lee Nutter - 32,909; Ramon
A. Rodriguez - 29,693; Allan C. Sorensen -
29,693; Michael W. Wickham - 32,844.
Executive
Officers
Executive
Officer Appointments
As of the effective time of the merger, Mr. OConnor
will be the Chief Executive Officer, Mr. Holmes will be the
Chief Financial Officer, and Mr. Cordesman will be the
Executive Vice President of Republic.
Equity
Awards
In accordance with the terms of the Republic Services, Inc. 1998
Stock Incentive Plan, upon consummation of the merger, all
outstanding unvested equity awards of Republic will vest,
including those held by the executive officers.
Incentive
Compensation
In accordance with the terms of the Republic Services, Inc.
Executive Incentive Plan, upon consummation of the merger, the
performance goals and other conditions to the payments of the
outstanding awards held by all executive officers of Republic
shall be deemed achieved and satisfied for performance periods
in effect at the time of the merger. Such awards are to be paid
at target levels within 10 days following the merger.
Deferred
Compensation
In accordance with the terms of the Republic Services, Inc.
Deferred Compensation Plan, upon consummation of the merger, the
account balances of the executive officers become fully vested.
However, with the exception of $390,809 payable to David A.
Barclay, Senior Vice President, General Counsel and Assistant
Secretary of Republic, such amounts are already vested. In
addition, Messrs. OConnor, Cordesman and Holmes will
receive a distribution of their account balances upon the
consummation of the merger, in accordance with their elections
made at the time the deferred compensation plan was adopted.
Severance
For David A. Barclay
It is currently anticipated that Mr. Barclay will terminate
his employment with Republic for good reason upon the relocation
of Republics offices to Arizona. Pursuant to his
employment agreement, upon such termination for good reason
within two years of the merger, in addition to the benefits
discussed above, he will be entitled to the following severance:
|
|
|
|
|
Three times the sum of (a) adjusted salary plus
(b) maximum annual incentive award.
|
|
|
|
Maximum long-term incentive awards for all open periods, all
paid in lump sum.
|
|
|
|
Continued coverage under benefit plans for two years.
|
|
|
|
Gross-up
payment for any excise taxes imposed with respect to payments
contingent on a change in control of Republic.
|
|
|
|
Payment of Mr. Barclays deferred compensation account
plus a
gross-up
payment for federal taxes due, at the effective tax rate then in
effect, on the balance that existed in such account as of
December 31, 2006 (including any deferrals made after such
date but attributable to periods prior to such date).
|
71
Executive
Officers
The following table sets forth the value of benefits each
current Republic executive officer will receive upon
consummation of the merger, and, in the case of
Mr. Barclay, the termination of his employment for good
reason.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
Incentive
|
|
|
Benefits
|
|
|
Restricted
|
|
|
Deferred
|
|
|
|
|
Executive Officers
|
|
Severance
|
|
|
Compensation
|
|
|
Continuation(1)
|
|
|
Stock Vesting(2)
|
|
|
Compensation(3)
|
|
|
Total
|
|
|
James E. OConnor(4)(5)
|
|
$
|
|
|
|
$
|
3,108,000
|
|
|
$
|
|
|
|
$
|
4,222,346
|
|
|
$
|
|
|
|
$
|
7,330,346
|
|
Michael J. Cordesman(4)(5)
|
|
|
|
|
|
|
1,770,000
|
|
|
|
|
|
|
|
1,555,601
|
|
|
|
|
|
|
|
3,325,601
|
|
Tod C. Holmes(4)(5)
|
|
|
|
|
|
|
1,660,000
|
|
|
|
|
|
|
|
1,532,209
|
|
|
|
|
|
|
|
3,192,209
|
|
David A. Barclay(5)
|
|
|
3,985,211
|
|
|
|
1,122,000
|
|
|
|
30,983
|
|
|
|
1,532,209
|
|
|
|
390,809
|
|
|
|
7,061,212
|
|
|
|
|
(1) |
|
The lump sum present value of Republics obligation for
benefits continuation to Mr. Barclay is calculated based on
the current cost of such coverage assuming a 20% percent annual
increase in the cost of such coverage and a discount rate of
6.5%. |
|
(2) |
|
This amount represents the value of the previously unvested
restricted stock that vests upon consummation of the merger. For
the purposes of this calculation the value of the stock of
Republic at the time of the merger is assumed to be $31.19 per
share, which is the closing price of the stock on June 20,
2008. That value is an approximation and is subject to change. |
|
(3) |
|
The following deferred compensation amounts will be distributed
to the executives upon the consummation of the merger: James E.
OConnor $12,099,118, Michael J.
Cordesman $4,552,568, Tod C. Holmes
$7,994,526 and David Barclay $5,560,580; however,
with the exception of $390,809 with respect to David Barclay,
such amounts were earned and are already vested. These figures
are based on information available as of July 28, 2008 and
are subject to change. Additionally, Republic will make a
$2,199,107 payment to David Barclay (assuming tax rates
currently in effect) so that he receives the distribution of his
deferred compensation account balance that existed on
December 31, 2006 (including any deferrals made after such
date but attributable to periods prior to such date) free of
income and any other taxes. |
|
(4) |
|
Messrs. OConnor, Cordesman and Holmes also have
severance provisions in their existing employment agreements.
Their severance provisions are substantially the same as those
in Mr. Barclays employment agreement, which is
described above under Interests of Republic Executive
Officers and Directors in the Merger Executive
Officers Severance for David A. Barclay on
page 71. Pursuant to their existing agreements, each of
Messrs. OConnor, Cordesman and Holmes has the right
to terminate his employment with Republic for good reason,
including the relocation of Republics offices to Arizona.
In addition to the amounts set forth above,
Messrs. OConnor, Cordesman and Holmes would be
entitled to cash severance and income tax
gross-ups on
their deferred compensation accounts balances as follows: James
E. OConnor $12,919,849 severance and $5,174,376
tax
gross-up,
Michael J. Cordesman $6,800,659 severance and
$1,843,799 tax
gross-up,
Tod C. Holmes $5,561,711 severance and $3,129,091 tax
gross-up.
The income tax
gross-up
would be calculated based on the deferred compensation account
balances as of December 31, 2006. |
|
(5) |
|
Additionally, Republic will make an excise tax gross-up payment
that should not exceed $3,400,000 to Mr. Barclay so that he
retains the same amount of the payments as he would if no excise
tax had been imposed under Section 4999 of the Code. In the
event that Messrs. OConnor, Cordesman or Holmes
terminates his employment for good reason following the merger,
which is not anticipated, the excise tax
gross-up
payment should not exceed $9,400,000, $4,700,000 or $4,600,000,
respectively. Excise tax
gross-up
calculations depend on variables that will become known only at
the time of the merger; thus these figures are approximations
only and are subject to change as more information becomes
available. |
Republic expects that each of Messrs. OConnor,
Cordesman and Holmes will relocate to Arizona and continue to be
employed by Republic for at least two years following the
closing of the merger. Republic also expects that
Messrs. OConnor, Cordesman and Holmes will be
eligible to receive an integration bonus following the combined
companys achievement of a targeted level of synergies at
the beginning of the third
72
year following the merger. In connection with the implementation
of the integration bonus plan, Republic intends to require each
of Messrs. OConnor, Cordesman and Holmes to enter
into a waiver of his existing rights to terminate employment for
good reason as a result of the relocation to Arizona or the
combined companys new reporting structure (and
corresponding roles, responsibilities and authority) as has been
contemplated in connection with the integration planning
process. For more information regarding the integration bonus
plan, see The Merger Integration Bonus
on page 92.
Allied
Reasons for the Merger
In reaching its decision to approve the merger agreement and
recommend that its stockholders adopt the merger agreement, the
Allied board of directors considered a number of factors,
including the ones discussed in the following paragraphs.
In arriving at its determination, the Allied board of directors
consulted with Allieds management and its financial and
legal advisors and considered a number of factors, including the
following material factors, which the Allied board of directors
viewed as generally supporting its determination:
|
|
|
|
|
all the reasons described above under
Rationale for the Merger beginning on
page 58, including the strategic benefits, the synergy and
growth opportunities expected to be available to the combined
company and the ability to create a leading environmental
services firm;
|
|
|
|
the merger would provide significant opportunities for cost
savings by eliminating duplicate activities and realizing
synergies between the businesses of Allied and Republic,
including the Allied board of directors belief in the
achievability of Allied managements expected annual
expense savings of at least $150 million beginning in the
third year following the merger, primarily from route
consolidations, transportation and disposal savings, headcount
rationalization, facility closures and reduced financial
assurance costs, plus additional annual operating income of up
to $39 million beginning in the third year following the
merger relating to Allied initiatives such as national accounts
and centralized purchasing that management believes could be
extended to the combined company;
|
|
|
|
the fact that the combined company is expected to have an
investment grade credit rating for its unsecured senior debt, as
compared to Allieds current sub-investment grade credit
ratings, and the Allied board of directors belief that the
combined company will have an efficient capital structure with
substantial financial flexibility to fund dividends, invest in
the business and pay down debt;
|
|
|
|
the fact that the Republic common stock issued pursuant to the
merger in respect of Allied common stock will represent
approximately 51.7% of Republic immediately following the merger
and that Allied stockholders will therefore participate
meaningfully in the significant opportunities for long-term
growth of Republic;
|
|
|
|
Republics strong returns to stockholders, including a 60%
increase in Republics annual dividend to $.68 per share in
October 2007, the expectation that the transaction will produce
accretion to Republics earnings per share in the first
year after the merger, and the fact that Allied stockholders
will have the opportunity to participate in that dividend and
anticipated earnings growth;
|
|
|
|
the fact that the Allied common stock price implied by the
exchange ratio represented a premium of 8.8% to the closing
price of Allieds common stock on June 12, 2008, the
last trading day before the day on which Republic and Allied
confirmed that they were involved in discussions regarding a
possible business combination, and a premium of approximately
31% to the
90-day
average closing price of Allieds common stock for the
period ended June 12, 2008;
|
|
|
|
the fact that Republics common stock has historically
traded at a higher multiple of Republics last twelve
months of EBITDA as compared to the level at which Allieds
common stock trades to Allieds last twelve months of
EBITDA;
|
|
|
|
the opinion of UBS dated as of June 22, 2008 to the Allied
board of directors as to the fairness, from a financial point of
view and as of the date of the opinion, of the exchange ratio,
to the holders of Allied common stock (see
Opinion of Financial Advisor to the Allied
Board of Directors);
|
73
|
|
|
|
|
based upon the discounted cash flow analysis performed by UBS
(see Opinion of Financial Advisor to the Allied
Board of Directors), the implied present values of
Republic pro forma for the merger and including estimated net
synergies ranges from approximately $40.50 to $49.50 per share
of Republic common stock (the foregoing is based on the implied
present values per share of Allied common stock, pro forma for
the merger and including estimated net synergies, based upon the
.45 shares of common stock of Republic to be issued in
exchange for each share of Allied common stock in the merger,
ranging from approximately $18.25 to $22.25, divided by the
exchange ratio of .45);
|
|
|
|
information concerning Republics and Allieds
respective businesses, prospects, financial condition and
results of operations, management and competitive position,
including the results of business, legal, environmental and
financial due diligence investigations of Republic conducted by
Allieds management;
|
|
|
|
the proposed governance and management of the combined company,
including that the Chairman of the Board and Chief Executive
Officer would be Mr. OConnor, the President and Chief
Operating Officer would be Mr. Slager and the combined
companys board of directors initially would include five
members who were directors of Allied immediately prior to the
merger;
|
|
|
|
the fact that the executive and operational headquarters of the
combined company will be located in Phoenix, Arizona;
|
|
|
|
the expected qualification of the merger as a reorganization
within the meaning of Section 368(a) of the Code resulting
in the stock consideration to be received by holders of Allied
common stock in the merger not being subject to federal income
tax, as described under Material Federal Income Tax
Consequences of the Merger; and
|
|
|
|
the belief that the terms of the merger agreement, including the
parties respective representations, warranties and
covenants, are reasonable and would not prevent third parties
from making competing bids.
|
In addition to the factors described above, the Allied board of
directors identified and considered a variety of risks and
potentially negative factors concerning the merger, including:
|
|
|
|
|
the possibility that the merger might not be completed as a
result of the failure to satisfy one or more conditions to the
merger, including the condition that the combined company
achieve specified senior unsecured credit ratings as described
under The Merger Agreement Conditions to
Completion of the Merger;
|
|
|
|
the possibility that completion of the merger might be delayed
or subject to adverse conditions that may be imposed by
governmental authorities, including the Department of Justice,
that the required governmental approvals may not be obtained at
all and the period of time Allied may be subject to the merger
agreement without assurance that the merger will be completed;
|
|
|
|
the effect of the public announcement of the merger on
Allieds revenues, operating results, stock price,
customers, suppliers, management, employees and other
constituencies;
|
|
|
|
the risk that the operations of the two companies might not be
successfully integrated or integrated in a timely manner, and
the possibility of not achieving the anticipated synergies and
other benefits sought to be obtained in the merger;
|
|
|
|
the substantial costs to be incurred in connection with the
merger, including costs of integrating the businesses and
transaction expenses arising from the merger, which may exceed
managements estimates;
|
|
|
|
because the exchange ratio is a fixed number of shares of
Republic common stock, the possibility that holders of Allied
common stock could be adversely affected by a decrease in the
trading price of Republic common stock between the date of
announcement of execution of the merger agreement or the date of
the Allied stockholder meeting and the closing of the merger,
and the fact that the merger
|
74
|
|
|
|
|
agreement does not provide Allied stockholders with a minimum
price or Allied with a price-based termination right or other
similar protection;
|
|
|
|
|
|
the limitations imposed in the merger agreement on the
solicitation or consideration by Allied of alternative business
combinations prior to the completion of the merger and the other
terms and conditions of the merger agreement;
|
|
|
|
the risk that Republic has liabilities which were not identified
during Allieds due diligence;
|
|
|
|
the fact that upon termination of the merger agreement under
specified circumstances, Allied may be required to pay Republic
a termination fee of $200 million plus expenses of up to
$50 million and this termination fee may discourage other
parties that may otherwise have an interest in a business
combination with, or an acquisition of, Allied;
|
|
|
|
the interests that certain Allied executive officers and
directors may have with respect to the combination in addition
to their interests as Allied stockholders; and
|
|
|
|
various other risks associated with the merger and
Republics business and Republic set forth under the
section entitled Risk Factors.
|
The foregoing discussion of the material factors considered by
the Allied board of directors is not intended to be exhaustive,
but does set forth the principal factors considered by the
Allied board of directors.
In light of the number and wide variety of factors considered in
connection with its evaluation of the transaction, the Allied
board of directors did not consider it practicable to, and did
not attempt to, quantify, rank or otherwise assign relative
weights to the specific factors it considered in reaching its
determination. Rather, the Allied board of directors made its
recommendation based on the totality of information presented
to, and the investigations conducted by or at the direction of,
the Allied board of directors. In addition, individual directors
may have given different weight to different factors. This
explanation of Allieds reasons for the merger with
Republic and other information presented in this section is
forward-looking in nature and, therefore, should be read in
light of the factors discussed under Cautionary Statement
Regarding Forward-Looking Statements.
Recommendations
of the Allied Board of Directors
The Allied board of directors has unanimously determined that
the merger agreement and the merger contemplated by the merger
agreement are advisable and in the best interests of Allied and
its stockholders. The Allied board of directors recommends that
Allied stockholders vote:
|
|
|
|
|
FOR the adoption of the merger
agreement; and
|
|
|
|
FOR the adjournment of the special meeting,
if necessary, to solicit additional proxies in favor of the
foregoing proposal.
|
Certain
Financial Forecasts Reviewed by the Allied Board of
Directors
Allied does not, as a matter of course, publicly disclose
forecasts or internal projections as to future performance,
earnings or other results. In connection with discussions
concerning the proposed transaction, the management of Allied
prepared and furnished to the management of Republic certain
financial forecasts for Allied. The inclusion of certain of the
financial forecasts in this proxy statement/prospectus should
not be regarded as an indication that Allied, or its board of
directors, considered, or now considers, these forecasts to be
material to a stockholder or a reliable predictor of future
results. You should not place undue reliance on the financial
forecasts contained in this proxy statement/prospectus. Please
read carefully Important Information about
the Financial Forecasts below.
Allied
Financial Forecast
Allieds management prepared and provided the following
information to the Allied board of directors and UBS regarding
Allieds forecasted operating results for 2008 through
2012. The following forecast was
75
based on the long-term plan Allied developed in early 2007 as
part of its strategic planning, which plan (including underlying
assumptions regarding revenue and EBITDA margin growth) was
reviewed and discussed in detail by the Allied board of
directors over several board meetings from May to July 2007. In
early 2008, when the following forecast was prepared, management
believed the fundamental assumptions underlying the 2007 plan,
subject to minor adjustments, continued to be appropriate for
purposes of evaluating long-term performance.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
December 31,(1)
|
|
|
2008E-2012E
|
|
(Dollars in millions)
|
|
2008E
|
|
|
2009E
|
|
|
2010E
|
|
|
2011E
|
|
|
2012E
|
|
|
CAGR (%)
|
|
|
Revenue
|
|
$
|
6,267
|
|
|
$
|
6,551
|
|
|
$
|
6,879
|
|
|
$
|
7,225
|
|
|
$
|
7,587
|
|
|
|
4.9
|
%
|
EBITDA(2)
|
|
|
1,760
|
|
|
|
1,883
|
|
|
|
2,043
|
|
|
|
2,192
|
|
|
|
2,347
|
|
|
|
7.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization
|
|
|
576
|
|
|
|
584
|
|
|
|
599
|
|
|
|
632
|
|
|
|
667
|
|
|
|
|
|
Capital Expenditures
|
|
|
(650
|
)
|
|
|
(701
|
)
|
|
|
(736
|
)
|
|
|
(773
|
)
|
|
|
(812
|
)
|
|
|
|
|
Change in Net Working
Capital(3)
|
|
|
(179
|
)
|
|
|
(82
|
)
|
|
|
(120
|
)
|
|
|
(65
|
)
|
|
|
(40
|
)
|
|
|
|
|
|
|
|
(1)
|
|
Significant assumptions made in
connection with the forecasted financial information include:
|
|
|
|
|
|
Annual revenue growth ranging from 3.3% to 5.0%;
|
|
|
|
Annual EBITDA margins ranging from 28.1% to 30.9% of revenue; and
|
|
|
|
Annual capital expenditures ranging from 10.4% to 10.7% of
revenue.
|
|
|
|
(2)
|
|
EBITDA is net income before
interest expense, income taxes, depreciation and amortization.
|
|
(3)
|
|
The estimated 2008 change in net
working capital is adjusted to exclude $393 million of
payments related to an IRS tax matter partially offset by the
expected cash tax benefit of $71 million for the
deductibility of interest.
|
Republic
Financial Forecast
Allieds management provided the following information to
the Allied board of directors and UBS regarding projections of
Republics operating results for 2008 through 2012. The
projections were prepared by Republic and submitted to Allied.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended December 31,
|
|
|
2008E-2012E
|
|
(Dollars in millions)
|
|
2008E
|
|
|
2009E
|
|
|
2010E
|
|
|
2011E
|
|
|
2012E
|
|
|
CAGR (%)
|
|
|
Revenue
|
|
$
|
3,284
|
|
|
$
|
3,410
|
|
|
$
|
3,582
|
|
|
$
|
3,761
|
|
|
$
|
3,950
|
|
|
|
4.7
|
%
|
EBITDA
|
|
|
937
|
|
|
|
1,010
|
|
|
|
1,086
|
|
|
|
1,155
|
|
|
|
1,233
|
|
|
|
7.1
|
|
Depreciation and Amortization
|
|
|
328
|
|
|
|
333
|
|
|
|
346
|
|
|
|
360
|
|
|
|
378
|
|
|
|
|
|
Capital
Expenditures(1)
|
|
|
(345
|
)
|
|
|
(368
|
)
|
|
|
(339
|
)
|
|
|
(374
|
)
|
|
|
(361
|
)
|
|
|
|
|
|
|
|
(1)
|
|
The capital expenditures presented
include expected annual cash expenditures for environmental
remediation associated with Republics Countywide landfill
of $17 million and $17 million in 2008 and 2009,
respectively.
|
Use of
Financial Forecasts
Allied used the foregoing financial forecasts, plus
Allieds estimate of net synergies to be realized from the
merger, to arrive at an implied present value of Republic pro
forma for the merger. See Allied Reasons for
the Merger.
Two financial forecasts were prepared by the management of
Republic and provided to UBS. The first Republic financial
forecast was provided to Allied on April 18, 2008 in
response to Allieds request for a forecast to use in its
valuation analysis. This forecast is reflected above and is the
forecast used by UBS (at the direction of Allied management).
The second financial forecast was provided to Allied on or about
June 4, 2008. The Republic financial forecast used by UBS
for purposes of its opinion differs from the second Republic
financial forecast provided to Allied as the second Republic
financial forecast assumed lower long-term annual revenue growth
and EBITDA margins.
76
Allied management selected the first financial forecast provided
by Republic because it is consistent with Allieds internal
views regarding long-term expected industry and company
performance based on factors such as inflation, waste volumes
and pricing, and because the second financial forecast provided
by Republic was extrapolated from the three-year forecast used
by Republic primarily for purposes of its long-term incentive
compensation plan. Allieds due diligence investigation of
Republic did not give Allied reason to select or use the second
financial forecast provided by Republic. Allieds
management presented to the Allied board of directors only the
first financial forecast provided by Republic, which was
consistent, in terms of revenue and EBITDA margin growth, with
Allieds own forecast and Allieds long-term plan
developed and reviewed by the Allied board of directors in early
2007.
Important
Information about the Financial Forecasts
While the financial forecasts summarized above were prepared in
good faith, no assurance can be made regarding future events.
The estimates and assumptions underlying the financial forecasts
involve judgments with respect to, among other things, future
economic, competitive, regulatory and financial market
conditions and future business decisions that may not be
realized and that are inherently subject to significant
business, economic, competitive and regulatory uncertainties and
contingencies, including, among others, risks and uncertainties
described in Risk Factors and Cautionary
Statement Regarding Forward-Looking Statements, all of
which are difficult to predict and many of which are beyond the
control of Allied and will be beyond the control of the combined
company. There can be no assurance that the underlying
assumptions will prove to be accurate or that the projected
results will be realized, and actual results likely will differ,
and may differ materially, from those presented in the financial
forecasts, even if the merger is not completed. Such financial
forecasts cannot, therefore, be considered a reliable predictor
of future operating results and this information should not be
relied on as such.
The financial forecasts summarized in this section were prepared
solely for internal use and not with a view toward public
disclosure or with a view toward complying with the guidelines
established by the American Institute of Certified Public
Accountants for preparation and presentation of prospective
financial data, published guidelines of the SEC regarding
forward-looking statements or GAAP. In the view of Allieds
management, the financial forecasts prepared by Allied were
prepared on a reasonable basis. However, the financial forecasts
are not fact and should not be relied upon as being necessarily
indicative of future results, and readers of this joint proxy
statement/prospectus are cautioned not to place undue reliance
on this information. None of the financial forecasts reflect any
impact of the proposed merger.
The Allied financial forecasts included in this joint proxy
statement/prospectus were prepared by and are the responsibility
of the management of Allied. Neither PricewaterhouseCoopers LLP
nor Ernst & Young LLP has examined, compiled or
otherwise performed any procedures with respect to the
prospective financial information contained in these financial
forecasts and, accordingly, neither PricewaterhouseCoopers LLP
nor Ernst & Young LLP has expressed any opinion or
given any other form of assurance with respect thereto and they
assume no responsibility for the prospective financial
information. The PricewaterhouseCoopers LLP reports incorporated
by reference in this joint proxy statement/prospectus relate to
Allieds historical financial information. They do not
extend to the financial forecasts and should not be read to do
so. The Ernst & Young LLP report incorporated by reference
in this joint proxy statement/prospectus relates to
Republics historical financial information. It does not
extend to financial forecasts and should not be read to do so.
By including in this joint proxy statement/prospectus a summary
of certain Allied financial forecasts, neither Allied nor any of
its respective representatives has made or makes any
representation to any person regarding the ultimate performance
of Allied compared to the information contained in the financial
forecasts. The financial forecasts were prepared in June of 2008
and have not been updated to reflect any changes since that
date. Neither Allied nor, following the merger, the combined
company undertakes any obligation, except as required by law, to
update or otherwise revise the financial forecasts or financial
information to reflect circumstances existing since their
preparation or to reflect the occurrence of unanticipated
events, even in the event that any or all of the underlying
assumptions are shown to be in error, or to reflect changes in
general economic or industry conditions.
77
The summary of the financial forecasts is not included in this
joint proxy statement/prospectus in order to induce any
stockholder to vote in favor of any of the proposals to be voted
on at the Allied special meeting, as described in this joint
proxy statement/prospectus.
Opinion
of Financial Advisor to the Allied Board of Directors
On June 19, 2007, the Allied board of directors engaged UBS
to act as its financial advisor in connection with the
evaluation of strategic opportunities. On June 22, 2008, at
a meeting of the Allied board of directors held to evaluate the
proposed merger, UBS delivered to the Allied board of directors
an oral opinion, which opinion was confirmed by delivery of a
written opinion dated June 22, 2008, to the effect that, as
of that date and based on and subject to various assumptions,
matters considered and limitations described in its opinion, the
exchange ratio provided for in the merger was fair, from a
financial point of view, to the holders of Allied common stock.
The full text of the opinion of UBS describes the assumptions
made, procedures followed, matters considered and limitations on
the review undertaken by UBS. This opinion is attached as
Annex D and is incorporated into this joint proxy
statement/prospectus by reference. UBS opinion was
provided for the benefit of the Allied board of directors in
connection with, and for the purpose of, its evaluation of the
exchange ratio and did not address any other aspect of the
merger. The opinion did not address the relative merits of the
merger as compared to other business strategies or transactions
that might be available with respect to Allied or Allieds
underlying business decision to effect the merger. The opinion
does not constitute a recommendation to any shareholder as to
how such shareholder should vote or act with respect to the
merger. Holders of Allied common stock are encouraged to read
the opinion carefully in its entirety. The following summary of
UBS opinion is qualified in its entirety by reference to
the full text of UBS opinion.
In arriving at its opinion, UBS, among other things:
|
|
|
|
|
reviewed certain publicly available business and financial
information relating to Allied and Republic;
|
|
|
|
reviewed certain internal financial information and other data
relating to the business and financial prospects of Allied that
were provided to UBS by the management of Allied and not
publicly available, including financial forecasts and estimates
prepared by the management of Allied that the Allied board of
directors directed UBS to utilize for purposes of its analysis;
|
|
|
|
reviewed certain internal financial information and other data
relating to the business and financial prospects of Republic
that were provided to UBS by the management of Allied and not
publicly available, including financial forecasts and estimates
prepared by the management of Republic that the Allied board of
directors directed UBS to utilize for purposes of its analysis
(Two financial forecasts were prepared by the management of
Republic and provided to UBS. The Republic financial forecast
Allied management directed UBS to use for purposes of its
opinion differs from the Republic base case financial forecast
included in this joint proxy statement/prospectus under
Certain Financial Forecasts Reviewed by the
Republic Board of Directors and reflects higher growth
assumptions that Allied believes are consistent with growth
assumptions incorporated into the Allied financial forecast
prepared by the management of Allied. See
Certain Financial Forecasts Reviewed by the Republic Board of
Directors.);
|
|
|
|
reviewed certain estimates of synergies prepared by the
management of Allied that were provided to UBS by Allied and not
publicly available that the Allied board of directors directed
UBS to utilize for purposes of its analysis;
|
|
|
|
conducted discussions with members of the senior managements of
Allied and Republic concerning the businesses and financial
prospects of Allied and Republic;
|
|
|
|
reviewed publicly available financial and stock market data with
respect to certain other companies UBS believed to be generally
relevant;
|
78
|
|
|
|
|
reviewed the publicly available financial terms of certain
transactions involving certain companies that are generally in
the industry in which Allied operates;
|
|
|
|
reviewed current and historical market prices of Allied common
stock and Republic common stock;
|
|
|
|
considered certain pro forma effects of the merger on
Republics financial statements;
|
|
|
|
reviewed the merger agreement; and
|
|
|
|
conducted such other financial studies, analyses and
investigations, and considered such other information, as UBS
deemed necessary or appropriate.
|
In connection with its review, with the consent of the Allied
board of directors, UBS assumed and relied upon, without
independent verification, the accuracy and completeness in all
material respects of the information provided to or reviewed by
UBS for the purpose of its opinion. In addition, with the
consent of the Allied board of directors, UBS did not make any
independent evaluation or appraisal of any of the assets or
liabilities (contingent or otherwise) of Allied or Republic, nor
was UBS furnished with any such evaluation or appraisal. With
respect to the financial forecasts, estimates, synergies and pro
forma effects referred to above, UBS assumed, at the direction
of the Allied board of directors, that such forecasts,
estimates, synergies and pro forma effects had been reasonably
prepared on a basis reflecting the best currently available
estimates and judgments of the management of each of Allied and
Republic as to the future financial performance of their
respective companies and such synergies and pro forma effects.
In addition, UBS assumed, with the approval of the Allied board
of directors, that the financial forecasts and estimates,
including synergies, referred to above would be achieved at the
times and in the amounts projected. UBS also assumed, with the
consent of the Allied board of directors, that the merger would
qualify for U.S. federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended. UBS opinion was
necessarily based on economic, monetary, market and other
conditions as in effect on, and the information made available
to UBS as of, the date of its opinion.
At the direction of the Allied board of directors, UBS was not
asked to, and it did not, offer any opinion as to the terms,
other than the exchange ratio to the extent expressly specified
in UBS opinion, of the merger agreement or the form of the
merger. In addition, UBS expressed no opinion as to the fairness
of the amount or nature of any compensation to be received by
any officers, directors or employees of any parties to the
merger, or any class of such persons, relative to the exchange
ratio. UBS expressed no opinion as to what the value of Republic
common stock would be when issued pursuant to the merger or the
prices at which Republic common stock or Allied common stock
would trade at any time. In rendering its opinion, UBS assumed,
with the consent of the Allied board of directors, that
(i) Republic and Allied would comply with all material
terms of the merger agreement and (ii) the merger would be
consummated in accordance with the terms of the merger agreement
without any adverse waiver or amendment of any material term or
condition of the merger agreement. UBS also assumed that all
governmental, regulatory or other consents and approvals
necessary for the consummation of the merger would be obtained
without any material adverse effect on Allied, Republic, or the
merger. Except as described above, Allied imposed no other
instructions or limitations on UBS with respect to the
investigations made or the procedures followed by UBS in
rendering its opinion. The issuance of UBS opinion was
approved by an authorized committee of UBS.
In connection with rendering its opinion to the Allied board of
directors, UBS performed a variety of financial and comparative
analyses which are summarized below. The following is not a
complete description of all analyses performed and factors
considered by UBS in connection with its opinion. The
preparation of a fairness opinion is a complex process involving
subjective judgments and is not necessarily susceptible to
partial analysis or summary description. With respect to the
selected companies analysis summarized below, no company used as
a comparison was identical to Allied, Republic or Republic pro
forma for the merger. These analyses necessarily involved
complex considerations and judgments concerning financial and
operating characteristics and other factors that could affect
the public trading values of the companies concerned.
UBS believes that its analyses and the summary below must be
considered as a whole and that selecting portions of its
analyses and factors or focusing on information presented in
tabular format, without considering all analyses and factors or
the narrative description of the analyses, could create a
misleading or incomplete
79
view of the processes underlying UBS analyses and opinion.
UBS did not draw, in isolation, conclusions from or with regard
to any one factor or method of analysis for purposes of its
opinion, but rather arrived at its ultimate opinion based on the
results of all analyses undertaken by it and assessed as a whole.
The estimates of the future performance of Allied, Republic, and
Republic pro forma for the merger in or underlying UBS
analyses are not necessarily indicative of future results or
values, which may be significantly more or less favorable than
those estimates. In performing its analysis, UBS considered
industry performance, general business and economic conditions
and other matters, many of which are beyond Allieds or
Republics control. Estimates of the financial value of
companies do not purport to be appraisals or necessarily reflect
the prices at which companies may actually be sold.
The exchange ratio was determined through negotiations between
Allied and Republic and the decision of the Allied board of
directors to enter into and approve the merger agreement was
solely that of the Allied board of directors. UBS opinion
and financial analyses were only one of many factors considered
by the Allied board of directors in its evaluation of the merger
and should not be viewed as determinative of the views of the
Allied board of directors or management with respect to the
merger or the exchange ratio.
The following is a brief summary of the material financial
analyses performed by UBS and reviewed with the Allied board of
directors on June 22, 2008, in connection with UBS
opinion relating to the proposed merger. Portions of the
summaries of the financial analyses include information
presented in tabular format. In order to fully understand
UBS financial analyses, the tables must be read together
with the text of each summary. The tables alone do not
constitute a complete description of the financial analyses.
Considering the data below without considering the full
narrative description of the financial analyses, including the
methodologies and assumptions underlying the analyses, could
create a misleading or incomplete view of UBS financial
analyses.
Historical Trading Ratio Analysis. For
perspective on the relative prices at which Allieds common
stock and Republics common stock have historically traded,
UBS reviewed the ratio of the average daily closing prices per
share of Allied common stock to the average daily closing prices
per share of Republic common stock for the twelve month period
ended June 12, 2008, the last trading day before the day on
which Republic and Allied confirmed that they were involved in
discussions regarding a possible business combination, as well
as the ratio of the average daily closing prices per share of
Allied common stock to the average daily closing prices per
share of Republic common stock for each of the other periods set
forth in the table below, each such period ended June 12,
2008. UBS noted that, as of June 12, 2008, the ratio of the
closing price per share of Allied common stock to the closing
price per share of Republic common stock was .4135. UBS
calculated illustrative implied trading ratios by dividing the
average daily closing prices per share of Allied common stock by
the average daily closing prices per share of Republic common
stock for each such period. UBS compared the results of this
analysis to the exchange ratio of .45 shares of Republic
common stock per share of Allied common stock provided for in
the merger.
The following table presents the results of this analysis as of
June 12, 2008.
|
|
|
|
|
|
|
Illustrative Implied
|
|
|
|
Trading Ratio
|
|
|
|
(average daily closing prices
|
|
|
|
per share of Allied common
|
|
|
|
stock divided by average
|
|
|
|
daily closing prices per share of
|
|
|
|
Republic common stock)
|
|
|
30 Trading Day Average
|
|
|
.3949
|
|
60 Trading Day Average
|
|
|
.3865
|
|
90 Trading Day Average
|
|
|
.3697
|
|
Last Twelve Months Average
|
|
|
.3787
|
|
|
|
|
|
|
|
|
|
|
|
Exchange Ratio, as Provided For in the Merger
|
|
|
.4500
|
|
Summary Contribution Analysis. To compare the
relative contribution of Allied to Republic pro forma for the
merger, based on the various financial metrics described below,
to the percentage of the common stock
80
of Republic pro forma for the merger to be received by holders
of Allied common stock as a result of the merger, UBS performed
the levered and unlevered contribution analyses described below.
Levered Analysis. UBS performed an analysis of
the relative contributions from each of Allied and Republic to
the pro forma combined company, both including and excluding the
synergies estimated by the management of Allied to result from
the merger, with respect to selected levered financial metrics
that can be assessed relative to implied equity value. For this
analysis, UBS reviewed the relative contributions of Allied and
Republic to the pro forma combined company, both including and
excluding estimated synergies, with respect to net income for
the twelve month period ended March 31, 2008, and with
respect to estimated net income for 2008. UBS used the internal
estimates referred to above for the net income of each of Allied
and Republic and for the synergies expected to result from the
merger. UBS compared the results of this analysis to the
expected 51.7% ownership by Allied stockholders of the common
stock of Republic pro forma for the merger.
Unlevered Analysis. In addition, UBS performed
an analysis of the relative contributions from each of Allied
and Republic to the pro forma combined company, both including
and excluding the synergies estimated by the management of
Allied to result from the merger, with respect to selected
unlevered financial metrics that can be assessed relative to
implied enterprise value. For this analysis, UBS calculated the
implied enterprise value of Allied as the sum of (i) the
implied equity value of Allied pro forma for the merger
(calculated as (a) the number of diluted shares outstanding
of Allied as of March 31, 2008, based on the treasury stock
method for stock options and including restricted stock units as
though fully vested, multiplied by (b) the implied closing
price of Allied common stock on June 12, 2008, of $15.15
per share, which is referred to in this summary as the
Offer Value and equals the closing price per share
of Republic common stock on June 12, 2008 of $33.66
multiplied by the exchange ratio of .45 shares of Republic
common stock per share of Allied common stock provided for in
the merger), (ii) the book value of the debt (net of cash)
and minority interests of Allied as of March 31, 2008, and
(iii) the estimated book value of a one-time special tax
payment, net of benefits, expected by the management of Allied
to be incurred in the last quarter of 2008, as estimated by the
management of Allied and that the Allied board of directors
directed UBS to utilize for the purposes of its analyses. UBS
calculated the implied enterprise value of Republic as the sum
of (i) the implied equity value of Republic (calculated as
(a) the number of diluted shares outstanding of Republic as
of March 31, 2008, based on the treasury stock method for
stock options, multiplied by (b) the closing price per
share of Republic common stock on June 12, 2008) and
(ii) the book value of the debt (net of cash) and minority
interests of Republic as of March 31, 2008. UBS then
reviewed the relative contributions of Allied and Republic to
the pro forma combined company, both including and excluding
estimated synergies, with respect to earnings before interest,
taxes, depreciation and amortization, commonly referred to as
EBITDA, for the twelve month period ended March 31, 2008,
and with respect to estimated EBITDA for 2008. UBS used the
internal estimates referred to above for the EBITDA of each of
Allied and Republic and for the synergies expected to result
from the merger. UBS compared the results of this analysis to
the expected 63.0% of the implied enterprise value of Republic
pro forma for the merger ascribable to Allied.
81
The table below presents the results of the contribution
analyses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage Contribution
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
Allied
|
|
|
Republic
|
|
|
Synergies
|
|
|
Levered Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
Implied Equity Ownership at Offer Value
|
|
|
51.7
|
%
|
|
|
48.3
|
%
|
|
|
|
%
|
Net Income Contribution for the Twelve Months Ended
March 31, 2008, Excluding Synergies
|
|
|
50.1
|
|
|
|
49.9
|
|
|
|
|
|
Net Income Contribution for the Twelve Months Ended
March 31, 2008, Including Synergies
|
|
|
42.4
|
|
|
|
42.2
|
|
|
|
15.4
|
|
2008E Net Income Contribution, Excluding Synergies
|
|
|
56.4
|
|
|
|
43.6
|
|
|
|
|
|
2008E Net Income Contribution, Including Synergies
|
|
|
49.0
|
|
|
|
37.9
|
|
|
|
13.2
|
|
Unlevered Analysis
|
|
|
|
|
|
|
|
|
|
|
|
|
Implied Relative Enterprise Value at Offer Value
|
|
|
63.0
|
|
|
|
37.0
|
|
|
|
|
|
EBITDA Contribution for the Twelve Months Ended March 31,
2008, Excluding Synergies
|
|
|
66.1
|
|
|
|
33.9
|
|
|
|
|
|
EBITDA Contribution for the Twelve Months Ended March 31,
2008, Including Synergies
|
|
|
61.5
|
|
|
|
31.6
|
|
|
|
6.9
|
|
2008E EBITDA Contribution, Excluding Synergies
|
|
|
65.2
|
|
|
|
34.8
|
|
|
|
|
|
2008E EBITDA Contribution, Including Synergies
|
|
|
61.0
|
|
|
|
32.5
|
|
|
|
6.6
|
|
Selected Public Companies Analysis. UBS
compared selected financial and stock market data of Allied and
Republic with corresponding data of the selected publicly traded
waste management companies identified in the table below. UBS
reviewed, among other things, the enterprise values of the
selected companies (calculated as the market value of equity,
plus the book value of debt and minority interests, plus
preferred stock, if any, at liquidation value, less cash) as
multiples of EBITDA for the twelve month period ended
March 31, 2008, and of estimated EBITDA for each of 2008
and 2009. UBS also reviewed the closing stock prices, as of
June 12, 2008, of the selected companies as a multiple of
earnings per share, commonly referred to as EPS, as estimated
for each of 2008 and 2009. UBS then compared these multiples for
the selected companies with corresponding multiples for each of
Republic, Allied, and Allied assuming an implied stock price at
Offer Value, using both (i) publicly available research
analysts estimates and (ii) the internal estimates
for each of Allied and Republic referred to above. Financial
data for the selected companies were based on publicly available
research analysts estimates, public filings and other
publicly available information. Equity market value and
multiples for Allied, Republic and the selected companies were
based on the closing price of the common stock of each company
on June 12, 2008 (or the Offer Value of Allied, as
applicable), and on the number of diluted shares of common stock
outstanding for each company using the treasury stock method for
stock options and, in the case of Allied only, including
restricted stock units as though fully vested.
82
This analysis indicated the following implied multiples for the
selected companies, as compared to corresponding multiples
implied for Republic, Allied, and Allied at Offer Value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Price on
|
|
|
|
Implied Enterprise Value
|
|
|
June 12,
|
|
|
|
12 Mos. Ended
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
3/31/08
|
|
|
2008E
|
|
|
2009E
|
|
|
2008E
|
|
|
2009E
|
|
Company
|
|
EBITDA
|
|
|
EBITDA
|
|
|
EBITDA
|
|
|
EPS
|
|
|
EPS
|
|
|
Waste Management, Inc.
|
|
|
7.9
|
|
|
|
7.6
|
|
|
|
7.2
|
|
|
|
17.0
|
|
|
|
15.1
|
|
Waste Services, Inc.
|
|
|
6.6
|
|
|
|
6.6
|
|
|
|
6.2
|
|
|
|
26.5
|
|
|
|
19.4
|
|
Casella Waste Systems, Inc.
|
|
|
6.8
|
|
|
|
6.9
|
|
|
|
6.6
|
|
|
|
nm
|
|
|
|
nm
|
|
Waste Connections, Inc.
|
|
|
9.7
|
|
|
|
9.4
|
|
|
|
8.8
|
|
|
|
20.6
|
|
|
|
17.9
|
|
Calculated Using Institutional Brokers Estimate System (IBES)
Consensus Estimates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Republic
|
|
|
9.1
|
|
|
|
8.4
|
|
|
|
7.9
|
|
|
|
18.5
|
|
|
|
16.8
|
|
Allied
|
|
|
7.7
|
|
|
|
7.4
|
|
|
|
7.0
|
|
|
|
14.8
|
|
|
|
13.3
|
|
Allied at Offer Value
|
|
|
8.0
|
|
|
|
7.7
|
|
|
|
7.3
|
|
|
|
16.1
|
|
|
|
14.5
|
|
Calculated Using Management Estimates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Republic
|
|
|
9.1
|
|
|
|
8.4
|
|
|
|
7.8
|
|
|
|
18.8
|
|
|
|
16.5
|
|
Allied
|
|
|
7.7
|
|
|
|
7.3
|
|
|
|
6.8
|
|
|
|
14.2
|
|
|
|
12.0
|
|
Allied at Offer Value
|
|
|
8.0
|
|
|
|
7.6
|
|
|
|
7.1
|
|
|
|
15.5
|
|
|
|
13.0
|
|
Discounted Cash Flow Analysis. UBS analyzed
the potential difference between the range of implied present
values per share of Allied common stock without giving effect to
the merger and the range of implied present values per
.45 shares of the common stock of Republic pro forma for
the merger to be issued in exchange for each share of Allied
common stock in the merger, in each instance based on a
discounted cash flow analysis. In connection with this analysis,
UBS first performed a discounted cash flow analysis of Allied
without giving effect to the merger, using the financial
forecasts for Allied referred to above for the last two quarters
of 2008 and for 2009 through 2012. UBS then performed a
discounted cash flow analysis of Republic pro forma for the
merger and including estimated net synergies (equivalent to
estimated synergies, net of severance, transition and
integration costs and other costs associated with the merger)
expected to result from the merger, using the estimates of net
synergies expected to result from the merger and the financial
forecasts for each of Allied and Republic, as applicable, for
the last two quarters of 2008 and for 2009 through 2012, each as
referred to above.
Allied Without Giving Effect to the
Merger. UBS performed a discounted cash flow
analysis of Allied using the financial forecasts for Allied
described above for the last two quarters of 2008 and for 2009
through 2012. UBS calculated a range of implied present values
as of June 30, 2008, of the standalone unlevered after-tax
free cash flows that Allied was forecasted to generate for the
last two quarters of 2008 and for 2009 through 2012 using
discount rates ranging from 8.0% to 9.0%. UBS derived the
discount rate range of 8.0% to 9.0% for such discounted cash
flow analysis by calculating a weighted average cost of capital
(WACC) range for Allied. The WACC analysis relied on
weightings of the cost of equity and the after-tax cost of debt
derived from UBS internal analysis and publicly available
information. UBS calculated a range of implied terminal values
for Allied as of December 31, 2012 by applying a range of
EBITDA multiples ranging from 7.0x to 8.0x to Allieds 2012
estimated EBITDA. The implied terminal values were then
discounted to present values as of June 30, 2008, using
discount rates ranging from 8.0% to 9.0%. This discounted cash
flow analysis resulted in a range of implied present values of
approximately $16.50 to $21.25 per share of Allied common stock.
Pro Forma for the Merger and Including Estimated Net
Synergies. UBS performed a discounted cash flow
analysis of Republic pro forma for the merger and including
estimated net synergies expected to result from the merger. For
this analysis, UBS aggregated the financial forecasts described
above for each of Allied and Republic for the last two quarters
of 2008 and for 2009 through 2012, and included estimated net
83
synergies described above through 2012. UBS calculated a range
of implied present values, as of June 30, 2008, of the
standalone unlevered after-tax free cash flows that Republic,
pro forma for the merger and including estimated net synergies,
was forecasted to generate for the last two quarters of 2008 and
for 2009 through 2012 using discount rates ranging from 8.0% to
9.0%. UBS derived the discount rate of 8.0% to 9.0% for such
discounted cash flow analysis by calculating a WACC range for
Republic, proforma for the merger and including estimated net
synergies. The WACC analysis relied on weightings of the cost of
equity and the after-tax cost of debt derived from UBS
internal analysis and publicly available information. UBS
calculated a range of implied terminal values for Republic, pro
forma for the merger and including estimated net synergies, as
of December 31, 2012 by applying a range of EBITDA
multiples ranging from 7.5x to 8.5x to estimated EBITDA for 2012
of Republic, pro forma for the merger and including estimated
net synergies. The implied terminal values were then discounted
to present values as of June 30, 2008, using discount rates
ranging from 8.0% to 9.0%. This discounted cash flow analysis
resulted in a range of implied present values, per share of
Allied common stock, pro forma for the merger and including
estimated net synergies, based upon the .45 shares of
common stock of Republic to be issued in exchange for each share
of Allied common stock in the merger, ranging from approximately
$18.25 to $22.25.
Based on the foregoing analyses, UBS then calculated the
percentage increase between (i) the implied present value
per share of Allied common stock without giving effect to the
merger and (ii) the implied present value per share of
Allied common stock, pro forma for the merger and including
estimated net synergies, based upon the .45 shares of
common stock of Republic to be issued in the merger in exchange
for each share of Allied common stock. UBS observed that such
percentage increase ranged from approximately 5% (when comparing
the implied present value per share of Allied common stock based
on a discount rate of 8.0% and a terminal value multiple of 8.0x
to the implied present value per share of Allied common stock,
pro forma for the merger and including estimated net synergies,
based on a discount rate of 8.0% and a terminal value multiple
of 8.5x) to 10% (when comparing the implied present value per
share of Allied common stock based on a discount rate of 9.0%
and a terminal value multiple of 7.0x to the implied present
value per share of Allied common stock, pro forma for the merger
and including estimated net synergies, based on a discount rate
of 9.0% and a terminal value multiple of 7.5x).
Miscellaneous. Under the terms of UBS
engagement, Allied has agreed to pay UBS for its financial
advisory services in connection with the merger an aggregate fee
currently estimated to be approximately $27.5 million, a
portion of which is payable to Moelis & Company. In
addition, a portion of the aggregate fee ($2.5 million) was
payable in connection with UBS opinion, a portion of the
aggregate fee ($2.0 million) was payable in connection with
the announcement of the merger and the remainder of the fee
($23.0 million) is contingent upon consummation of the
merger. In addition, Allied has agreed to reimburse UBS for its
reasonable expenses, including fees, disbursements and other
charges of its counsel, and to indemnify UBS and related parties
against liabilities, including liabilities under the federal
securities laws, relating to, or arising out of, its engagement.
In the past, UBS and its affiliates have provided investment
banking services to Allied unrelated to the merger, for which
UBS and its affiliates received compensation of approximately
$8.0 million in the aggregate, including having acted as
(i) joint book runner in connection with Allieds May
2006 notes offering; (ii) sole underwriter in connection
with Allieds November 2006 equity offering;
(iii) joint book runner in connection with Allieds
February 2007 notes offering; and (iv) co-documentation
agent in connection with Allieds March 2007
$3.175 billion amended and restated credit facility. As of
the date of UBS opinion, an affiliate of UBS was a
participant in a credit facility of Allied for which such
affiliate received fees and interest payments. In the ordinary
course of business, UBS and its affiliates may hold or trade,
for their own accounts and the accounts of their customers,
securities of Allied and Republic and, accordingly, may at any
time hold a long or short position in such securities. Allied
selected UBS as its financial advisor in connection with the
merger because UBS is an internationally recognized investment
banking firm with substantial experience in similar transactions
and because of UBS familiarity with Allied and its
business. UBS is regularly engaged in the valuation of
businesses and their securities in connection with mergers and
acquisitions, leveraged buyouts, negotiated underwritings,
competitive bids, secondary distributions of listed and unlisted
securities and private placements.
84
Interests
of Allied Executive Officers and Directors in the
Merger
In considering the recommendation of the Allied board of
directors with respect to the merger, Allied stockholders should
be aware that executive officers of Allied and members of the
Allied board of directors may have interests in the transactions
contemplated by the merger agreement that may be different from,
or in addition to, the interests of Allied stockholders
generally. The Allied board of directors was aware of these
interests and considered them, among other matters, in approving
the merger agreement and making its recommendation. These
interests are summarized below.
Appointment
of Directors and Executive Officers
When the merger is completed, certain current members of the
Allied board of directors will be appointed to the Republic
board of directors and to certain committees of the Republic
board of directors. In addition, certain executive officers of
Allied have been selected to serve as management of Republic.
More information regarding the directors and executive officers
who have been selected is set forth in Board of
Directors and Executive Officers of Republic Following the
Merger; Headquarters on page 92.
Treatment
of Stock Options and Other Equity-Based Awards
Allieds executive officers hold options to purchase Allied
common stock, shares of restricted Allied common stock and
Allied restricted and deferred stock units issued under
Allieds Amended and Restated 2006 Incentive Stock Plan
(which is the successor to the Amended and Restated 1991
Incentive Stock Plan). Under that plan all outstanding unvested
options to purchase shares of Allied common stock, unvested
shares of restricted stock and unvested deferred or restricted
stock units, including those held by executive officers of
Allied, will vest automatically at the effective time of the
merger.
The following table sets forth, for each executive officer of
Allied, as of June 22, 2008, the aggregate number of shares
subject to unvested options to purchase shares of Allied common
stock (and their weighted average exercise price), the number of
unvested shares of restricted Allied common stock and the number
of unvested Allied deferred or restricted stock units.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Number of
|
|
|
|
Shares Subject to
|
|
|
|
|
|
Unvested Shares of
|
|
|
Unvested Deferred or
|
|
|
|
Unvested
|
|
|
|
|
|
Restricted Stock
|
|
|
Restricted Stock
|
|
|
|
Options That Will
|
|
|
Weighted
|
|
|
That Will Vest in
|
|
|
Units That Will
|
|
|
|
Vest in Connection
|
|
|
Average Exercise
|
|
|
Connection with the
|
|
|
Vest in Connection
|
|
Executive Officer
|
|
with the Merger
|
|
|
Price per Share
|
|
|
Merger
|
|
|
with the Merger(1)
|
|
|
John J. Zillmer
|
|
|
1,365,742
|
|
|
$
|
9.99
|
|
|
|
36,676
|
|
|
|
176,439
|
|
Donald A. Slager
|
|
|
454,750
|
|
|
|
11.39
|
|
|
|
|
|
|
|
178,341
|
|
Peter S. Hathaway
|
|
|
200,275
|
|
|
|
11.41
|
|
|
|
|
|
|
|
146,683
|
|
Timothy R. Donovan
|
|
|
212,500
|
|
|
|
11.97
|
|
|
|
|
|
|
|
7,500
|
|
Edward A. Evans
|
|
|
304,075
|
|
|
|
10.36
|
|
|
|
|
|
|
|
49,209
|
|
|
|
|
(1) |
|
Includes certain restricted stock units which are vested but
subject to deferred delivery of the underlying stock. The
delivery of the stock will be accelerated as a result of the
merger. The amounts of these restricted stock units are: John J.
Zilmer - 53,626; Donald A. Slager - 33,851;
Peter S. Hathaway - 13,333; and Edward A.
Evans - 19,339. |
Allieds non-employee directors hold options to purchase
Allied common stock and shares of restricted Allied common stock
issued pursuant to the 2005 Non-Employee Director Equity
Compensation Plan (which is the successor to the 1994 Amended
and Restated Non-Employee Director Stock Option Plan). All of
the outstanding options to purchase Allied stock are fully
vested and, if unexercised as of the effective time of the
merger, will be converted into options to purchase Republic
common stock as described below. Pursuant to this plan,
restricted stock held by a non-employee director that is
unvested immediately prior to the effective time of the merger
will be treated as follows: (i) for directors who will
become directors of Republic, the restricted stock will be
converted into shares of Republic restricted stock subject to
the original vesting schedule of the award; and (ii) for
directors who will not become directors of Republic, the
restricted stock
85
will vest and be cancelled immediately prior to the effective
time of the merger and the directors will receive in cash the
fair market value of their award at the effective time of the
merger.
The following table sets forth, as of June 22, 2008, the
number of unvested restricted shares of Allied common stock held
by Allieds non-employee directors:
|
|
|
|
|
|
|
Number of
|
|
|
|
Unvested Shares of
|
|
Non-Employee Directors
|
|
Restricted Stock
|
|
|
David Abney(a)
|
|
|
18,656
|
|
Charles H. Cotros
|
|
|
5,533
|
|
James W. Crownover
|
|
|
5,533
|
|
William J. Flynn(b)
|
|
|
13,208
|
|
David I. Foley(c)
|
|
|
5,533
|
|
Nolan Lehmann
|
|
|
5,533
|
|
Leon J. Level(d)
|
|
|
12,919
|
|
James A. Quella(c)
|
|
|
5,533
|
|
John M. Trani(b)
|
|
|
13,208
|
|
|
|
|
(a) |
|
Mr. Abney was appointed as a director on April 7, 2008. |
|
(b) |
|
Messrs. Flynn and Trani were appointed as directors on
February 19, 2007. |
|
(c) |
|
Awards reflected were issued in respect of the service of
Messrs. Foley and Quella who are principals of Blackstone.
Pursuant to Blackstone policies, such awards were issued
directly to Blackstone rather than to Messrs. Foley or
Quella individually. |
|
(d) |
|
Mr. Level was appointed as a director on May 30, 2007. |
Under the terms of the merger agreement:
|
|
|
|
|
each outstanding option to purchase shares of Allied common
stock outstanding at the effective time of the merger, including
any option held by a director or executive officer of Allied,
will be assumed by Republic and will become an option to
purchase shares of Republic common stock with appropriate
adjustments to be made to the number of shares and the exercise
price under the option based on the exchange ratio; and
|
|
|
|
each outstanding Allied restricted common share, Allied
restricted stock unit and Allied deferred stock unit outstanding
at the effective time of the merger, including any held by a
director or executive officer of Allied, will become a
restricted share, restricted stock unit or deferred stock unit,
respectively, of Republic with appropriate adjustments made to
the number of shares subject to the award based on the exchange
ratio.
|
For a more complete description of the treatment of Allied
options, shares of restricted stock and deferred and restricted
stock units, see The Merger Agreement Allied
Stock Options, Other Equity-Based Awards and Convertible
Debentures.
Employment
Agreements
Allied previously entered into employment agreements with each
of its executive officers, which provide for certain payments
and other benefits if an executive officers employment
with Allied is terminated by Allied without cause or
by the executive for good reason under circumstances
specified in his respective agreement, including a change
in control of Allied (as defined in the agreement). The
merger will constitute a change in control for
purposes of these agreements. On June 22, 2008,
Allieds Management Development / Compensation
Committee approved revisions to these agreements. As a result,
the executive officers
86
(other than Mr. Slager, who has yet to execute his
agreement) have entered into new amended and restated agreements
which:
|
|
|
|
|
narrow the definition of cause for any determination
of cause on or after a change in
control, as that term is defined in the agreements. As
amended, Allied has cause to terminate the executive
on or after a change in control if the executive has
engaged in any of a list of specified activities, including the
conviction of (or plea of guilty or nolo contendere to) a
felony or any other crime involving Allied, the breach of any
material term of his employment agreement, the violation of
Allieds Code of Ethics or its policies regarding trading
of its stock or reimbursement of expenses, willful or deliberate
conduct that exposes Allied to potential financial or other
injury, fraud, misappropriation of assets, embezzlement, or the
willful and deliberate failure or refusal to perform his
assigned duties;
|
|
|
|
revise the definition of good reason to delete that
portion that would exempt the relocation of the executive
permanently to any office or location to which the majority of
Allied executive officers are located from being considered a
good reason under such agreements. As amended, the
executive officer is said to have good reason to
terminate his employment with Allied (and thereby receive the
benefits described below) if Allied assigns the executive duties
that are materially inconsistent with his position, materially
diminishes the executives position, materially breaches
any of the provisions of his employment agreement, materially
reduces the executive officers compensation or benefits,
requires that the executive officer relocate permanently to any
location except in the Phoenix-Scottsdale metropolitan area or
fails to comply with, or prevent or impede the executive from
complying with, any legal obligation in a manner that would
subject the executive to liability;
|
|
|
|
provide that in the event of a termination of employment by
Allied without cause or by the executive for good reason within
one year following the date of a change in control, the
executive will receive a pro rata portion of the target annual
incentive compensation bonus for the fiscal year in which the
termination occurs;
|
|
|
|
revise the parachute payment excise tax
gross-up
provisions therein to (a) eliminate a requirement that
Allieds share price attain a threshold for the tax
gross-up
provisions to be applicable; (b) eliminate a cap on an
executives base annual compensation that would be used to
calculate the amount of the
gross-up
payment; and (c) provide for an excise tax
gross-up
with respect to the benefits payable under the Supplemental
Retirement Benefit Plan, and any other amounts that may be
subject to the parachute payment excise tax, as determined for
purposes of Section 280G and Section 4999 of the Code
(the merger will not result in any excise tax gross-up payments);
|
|
|
|
in the case of Mr. Hathaway, reverses a change that was made on
account of Section 409A of the Code but which was not
necessary so that his stock options remain exercisable after a
termination of employment on a basis consistent with the other
executive officers agreements; and
|
|
|
|
eliminate the requirement that the executive repay to Allied any
and all proceeds realized by the executive (after termination of
employment) as a result of vesting, exercise or sale of shares
of Allied common stock granted or issued to the executive if
(i) the executive violates Allieds policies regarding
trading of common stock or violates any of the restrictive
covenant provisions set forth in the agreements, or
(ii) cause is determined following the executives
termination of employment. The agreements were amended to permit
Allied to terminate and recapture payments on account of cause
only if cause is determined within one year after termination of
employment.
|
The new agreements also revise the Supplemental Retirement
Benefit provisions contained in the prior agreements to provide
for the following:
|
|
|
|
|
If the executive has a termination of employment for any reason
other than cause prior to a change in control, the executive
will receive (within thirty days after the sixth month
anniversary of the date of termination) a cash lump sum payment
equal to the present value of the SERP Benefit, as that term is
defined in the agreement, multiplied by a fraction (not to
exceed one), the numerator of which is the executives
years of service and the denominator of which is 10 (the
Pro Rata SERP). The present value of the SERP
Benefit will be calculated based upon a 6% interest rate and
assuming payments
|
87
|
|
|
|
|
would have commenced on the 10th anniversary of the
executives initial date of employment (or in the case of
Mr. Hathaway, age 55) or, if later, the date of termination.
|
|
|
|
|
|
If, on or after a change in control, the executives
employment is terminated either by Allied without cause or by
the executive for good reason within one year of the date of the
change in control, the executive will receive (within thirty
days after the six month anniversary of the termination) a lump
sum payment equal to the present value of the full SERP Benefit.
|
|
|
|
If, on or after a change in control, the executives
employment is terminated for any reason other than by Allied for
cause (and the immediately preceding clause is not applicable),
the executive will receive (within thirty days after the sixth
month anniversary of the date of termination) a cash lump sum
payment equal to the Pro Rata SERP he would have been entitled
to receive if his employment was terminated immediately prior to
the change in control, increased by an annual interest rate of
six percent (6%) for the period from the date of the change in
control until the date of termination.
|
|
|
|
Elimination of the provision that provides for proportionate
reduction of the SERP Benefit if the executive becomes employed
by a non-competitor employer.
|
Under the amended and restated employment agreements, each of
Allieds executive officers (other than Mr. Slager,
who has yet to execute his agreement) will be entitled to the
following payments if the executives employment agreement
is terminated by the executive for good reason or by
Allied without cause within the six months preceding
or the twelve months following the effective time of the merger,
unless otherwise noted:
|
|
|
|
|
any unpaid base salary through the date of termination;
|
|
|
|
if the agreement is terminated by executive for good reason or
by Allied without cause within the twelve months following the
effective time of the merger, three times such executives
(a) base salary in effect at termination plus (b) such
executives target annual incentive compensation for the
year in which his termination occurs, payable in a lump sum
within 30 days after the six month anniversary of the date
of termination;
|
|
|
|
if the agreement is terminated by executive for good reason or
by Allied without cause within the six months preceding the
effective time of the merger, three times such executives
(a) base salary in effect at termination plus (b) such
executives target annual incentive compensation for the
year in which his termination occurs, payable in substantially
equal bi-weekly installments beginning as of the first payroll
date immediately following the six-month anniversary of the date
of termination and continuing until the first payroll date
immediately following the three year anniversary of termination
(provided that the first payment will include the amount that
would have been paid prior to the actual first payment date had
the first payment date been the first payroll date immediately
following termination);
|
|
|
|
if the agreement is terminated by executive for good reason or
by Allied without cause within the twelve months following the
effective time of the merger, a pro rata portion of the target
annual incentive compensation bonus for the fiscal year in which
the termination occurs;
|
|
|
|
the SERP Benefit as described above;
|
|
|
|
any accrued but unpaid vacation or paid leave;
|
|
|
|
any earned but unpaid annual incentive compensation; and
|
|
|
|
any unpaid deferred compensation.
|
In addition to the amounts described above, the executive is
also entitled to:
|
|
|
|
|
any reimbursements;
|
|
|
|
full and immediate vesting of all outstanding equity-based
awards under Allieds incentive stock plans and
two years to exercise such awards but not beyond the
remaining term;
|
88
|
|
|
|
|
a
gross-up
payment for excise taxes incurred by the executive under the
Code (a) due to cash payments made by Allied as a result of
termination of employment in connection with a change in
control, (b) due with respect to the SERP Benefits
(as defined in the agreements), or (c) due with respect to
any other amounts that may be subject to the parachute payment
excise tax, as determined for purposes of Section 280G and
Section 4999 of the Code (Allied will be obligated to make
a gross-up
payment only if the parachute payments to the
executive (as defined in Code Section 280G) equal or exceed
110% of the executives untaxed safe harbor amount); The
merger will not result in any excise tax gross-up payments.
|
|
|