Date: November 14, 2008
Source: Center for a Competitive Waste Industry
Republic - Allied Waste Merger Challenged
Independent Analysis Points to Significant Competitive Threats Usual Government Remedies Found Worthless; Innovative Alternative Proposed
As stockholders are voting today on the pending merger of two waste giants, Republic Services and Allied Waste, the Center for a Competitive Waste Industry called on the Department of Justice (DOJ) and affected state Attorneys General to consider innovative antitrust remedies to protect consumers.
An extensive independent analysis by the Center shows that the usual government remedies have not stopped further concentration in the industry. The merger will not be finalized until it gains regulatory approval. The American Antitrust Institute, the Consumer Federation of California, and the International Brotherhood of Teamsters support the findings of the report.
Currently under anti-trust review by DOJ and 14 state Attorneys General is an offer by Republic, the third largest waste company with $3.2 billion in 2007 revenues, to merge with Allied, the second largest with $6.1 billion (see PIE CHART). That would conflate a three into an even stronger two firm oligopoly in many markets, and a dominant monopoly in some.
According to the Center for a Competitive Industry, which prepared the report, the merger will lead to major price increases in 78 markets in 10 states (for a list of affected markets, see the TABLE on the next page), and the asset divestiture remedies proposed by DOJ to justify permitting the otherwise unlawful merger are a "proven failure."
Center Director, Peter Anderson, urged the Department to pursue innovative alternatives to failed asset divestitures. The best alternative, which has proved successful in the natural gas industry, is called "long term air space contracts." Anderson explained that "independent haulers are usually too small to afford packages of disgorged landfill and transfer station assets, so they are scooped up by other members of the oligopoly in a game of musical chairs. Instead," Anderson argued, "small competing haulers, on whom any hope for retaining competition in an oligopoly industry depends, should be given the right to purchase long term rights for airspace in Republic's landfills at fair rates."
Anderson pointed to the devastating consequences of the Department's reliance on asset divestitures in the first wave of mega-mergers in 1998, which are still not acknowledged by DOJ today. "Although Justice agreed with the Center's objection at the time that Waste Management could not be allowed to divest its assets to BFI, because that was just another member of the oligopoly, it saw Republic as a 'white knight.' Yet today," Anderson emphasized, Republic has grown to become just another member of the Big Three." Within weeks after DOJ signed off on the waste mergers, Waste Management attempted to impose "eye popping" price hikes averaging 89%, according to Waste News. The extent of the damage that this merger will wreck on competition is shown by the results of the Center's analysis, Anderson said. Of the 96 major local markets in 10 states analyzed, 78 would be so greatly consolidated that over time significant price increases would be inevitable (see BAR GRAPH above).
The names of the impacted communities in each of those 10 states are shown in the TABLE along side.
The American Antitrust Institute's Vice-President, Diana Moss, said "a merger set against this backdrop raises clear concerns about price increases post-merger for landfill use and ultimately to consumers for waste disposal services, making it difficult for rival firms that do not own landfill assets to remain competitive." Moss endorsed the Center's push for air space contracts in the event the merger is allowed.
Richard Holober, Executive Director of the Consumer Federation of California, urged regulators to recognize that their past remedies do not work, and consider the airspace remedy proposed by the Center. "The history of the garbage industry is littered with collusion and monopolization," Holober said, "and serious, not token, efforts to protect the consumer are essential."
Bob Morales, the Director of the Teamsters Solid Waste and Recycling Division, said, "The Teamsters support the Center's report. It is a wake up call for regulators to take real action to curb excessive market power. The remedies used in prior mergers have been ineffective and allowed an oligopoly in the solid waste industry. The Department of Justice should either oppose the merger to protect competition in the waste industry or insist upon real remedies such as airspace contracts."
Copies of the full report, Projected Impacts on Competition from the Merger of Republic Services and Allied Waste, are available on the web at www.competitivewaste.org.
For more information, contact:
Peter Anderson, (608) 444-2817
Center for a Competitive Waste Industry
313 Price Place P Suite 14
Madison, Wisconsin 53705
Tel. (608) 231-1100 P
Fax. (608) 233-0011