Waste Management Inc. (NYSE: WMI) raised its hostile bid for smaller rival Republic Services Inc. (NYSE: RSG) by more than 8% to $6.73 billion, a premium that should be enough to scuttle Republic's $6.24 billion purchase of Allied Waste Industries Inc. (NYSE: AW).

Under the terms of the deal, Waste Management would buy Republic for $37 per share, a premium of almost 33% to Republic's closing price on July 11, the last trading day before the company's buyout proposal was disclosed. The proposal is above Republic's all-time high stock price. Moreover, Waste Management will pay Republic, which rejected Waste Management's earlier offer as inadequate, a fee of $250 million if the merger does not close because of opposition from the U.S. Department of Justice.

"Our $37.00 all-cash proposal clearly offers Republic stockholders a better and more certain value
alternative than is contemplated in the Republic-Allied transaction," said David P. Steiner, Waste
Management's CEO, in a press release. "We believe our proposal is clearly superior for Republic's stockholders and is designed so we can work cooperatively with Republic to structure a transaction that would benefit both
Republic and Waste Management stockholders."

A combined Waste and Republic would create annual synergies of $200 million, $50 million more than the savings created by the Republic-Allied deal, according to the Wall Street Journal. The reason for Waste Management's interest in Republic is simple according to the paper: "Though smaller than Waste or Allied, Republic is generally regarded as the best-run trash hauler in the country, and its stock has outperformed its rivals."

The largest waste disposal company in the U.S., Waste Management Inc. (NYSE: WMI), wants to get even bigger. The company announced today that it proposes to pay $34 per share – or $6.3 billion -- for rival Republic Services, Inc. (NYSE: RSG).

On problem here is that Republic is already the subject of a merger with Allied Waste Industries, Inc. (NYSE: AW) announced in mid June. Although, if you take a look at the Republic-Allied merger agreement, there are clauses that allow Republic to entertain alternative offers. What's more, it looks like Waste Management may have access to internal data.

All in all, Waste Management is highly confident it will get the deal done: the firm has a plan for dealing with antitrust issues (likely involving divestitures); the investment grade status should be maintained; and the dividend will remain intact.

Without the benefit of any due diligence, Waste Management believes the deal will be accretive in the first year and provide at least $150 million in synergies. Basically, there should be lots of room to rip out duplicative costs, as well as get efficiencies from scale.

Waste Management also announced today its preliminary figures for Q2. The company plans to generate revenues of $3.49 billion, up 3.9% from the same period a year ago. Earnings are expected to be $0.64 per share.

So far in today's trading, though, Waste Management's stock is off 5% to $34.75. Of course, Republic stock is 15.6% higher to $32.25, while Allied Waste shares are down 7% to $11.15.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates MergerBook.com.

Republic Services (NYSE: RSG) is recently trading at $33.22, above its close of $27.90 Friday.

Waste Management (NYSE: WMI) announced it made a proposal to acquire all of RSG outstanding common stock for $34 per shares in cash. Allied Waste (NYSE: AW) offered to acquire RSG on June 23 for 0.45 shares of AW for each share of RSG.

RSG overall option implied volatility of 31 is near its 26-week average of 30 according to Track Data, suggesting non-directional price movement.

Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com

Republic Services, Inc. (NYSE: RSG) is recently up 41c to $34.12:

The WSJ reported RSG and AW are in merger discussions. RSG call option volume of 648 contracts compares to put volume of 10 contracts. RSG June 35 straddle is priced at $1.95. RSG July option implied volatility of 23 is below its 26-week average of 30 according to Track Data.

Allied Waste Industries, Inc. (NYSE: AW) is recently up 93 to $14.89:

The WSJ reported RSG and AW are in merger discussions. AW call option volume of 2,419 contracts compares to put volume of 114 contracts. AW July option implied volatility of 62 is above its 26-week average of 33.

Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com

MOST NOTEWORTHY: The environmental services sector, the machinery and capital goods sector and several bank holding companies were today's noteworthy initiations:

• Credit Suisse initiated shares of Allied Waste Industries Inc (NYSE: AW), Republic Services Inc (NYSE: RSG) and Waste Management Inc (NYSE: WMI) with Outperform ratings and a $16 target, $35 target and $45 target, respectively.
• Bernstein initiated the machinery and capital goods sector, initiating shares of Caterpillar Inc (NYSE: CAT) and Illinois Tool Works Inc (NYSE: ITW) with Outperform ratings and a $100 target and $68 target, respectively and Deere & Company (NYSE: DE), Eaton Corporation (NYSE: ETN), Ingersoll-Rand Company Ltd (NYSE: IR) and Parker-Hannifin Corporation (NYSE: PH) with Market Perform ratings.
• Sandler initiated shares of Preferred Bank Los Angeles CA (NASDAQ: PFBC) and UCBH Holdings, Inc (NASDAQ: UCBH) with Buy ratings and shares of Cathay General Bancorp (NASDAQ: CATY) and East West Bancorp, Inc (NASDAQ: EWBC) with Hold ratings.

OTHER INITIATIONS:

• Golfsmith International Holdings Inc (NASDAQ: GOLF) was initiated at Wedbush with a Buy rating and $8.75 target, as the firm believes the company is an attractive growth story and buyout candidate.
• Pharmasset Inc (NASDAQ: VRUS) was initiated with a Buy rating and $12 target at Banc of America, as the firm believes Clevudine has the potential to be best in class for the treatment of the hepatitis B virus.
• Ciena Corporation (NASDAQ: CIEN) was initiated with an Outperform rating and $40 target at Piper Jaffray.

On April 26, 2007, Allied Waste Industries (NYSE: AW) announced yet another waste-to-gas project in their continuing effort to put a dent in America's dependence on petroleum fuels. The newest methane production project is being undertaken in concert with Ameresco, Inc., Columbia Water & Light, and the State of Missouri. It is expected that the methane recovery project situated at the Jefferson City Landfill in Jefferson City, Missouri, will produce more than 3 megawatts of electricity. That's enough wattage to power up to two thousand homes. Additionally, heat generated at the facility will be used to power two Missouri prisons.

The story as reported by Green Progress News indicates growing trash conversion interests for Allied Waste. To me, this signals excellent long-term prospects for growth and sustainability for the company. Donald W. Slager, president and chief operating officer for Allied Waste, stated: "With over a dozen alternative-energy projects in the various stages of approval and development, we expect that our portfolio will continue to grow in the future." Do these types of trash-conversion projects offer long-term profitability? Given their growing popularity I would like to think so, but experts in the field indicate that the conversion of trash to usable energy and the associated compounds produced through the process is a science that is still early in its learning curve. An enlightening discussion on the subject is presented by the Science to Life blog.

I tend to believe that investment in these types of ventures should for now remain restricted to simple methane-capture propositions, such as those being utilized by Allied Waste. There are some very futuristic developments on the horizon, and as with any budding technological field there is much yet to be learned and confirmed. Governments and industry are steadily pushing to find the holy grail of successful waste conversion, and there are some promising developments in the works, but it's all just science for now and there's little to find in practical use.

Perhaps the Flux Capacitor is just around the corner but I'm not holding my breath just yet.

As I look around for stocks of interest, I often have one thing in mind. How do I find stocks for trading that I can reasonably depend on for consistent ups and downs? You see, if I were to buy stocks for quick returns, I'd like to find ones that appear to provide continuing opportunities, not just one way growth. Allied Waste Industries (NYSE:AW) is a stock which fits my thinking very nicely. When I look at the 5 year performance chart for AW, it gives the impression of waves. With some occasional exceptions, the AW chart shows me nice slow climbs to peaks and then nice easy declines to valleys. I'm thinking it's a stock that can be exploited for its cycles.

Now, if I had the money and the smarts to pull it off, AW is one stock that I'd like to take for a ride. I'd hop on in one of the valleys and just take the (semi-)predictable ride upward. Then when I felt that AW was comfortably near the cycle top, I'd hop off, pull my profits and prepare to short the trip down. I am nearly certain that there are experts out there who could provide me the data which would predict the movement of AW stock with near perfect accuracy. Allied Waste deals in garbage. Their income source is almost indestructible (in a manner of speaking). As their operating expenses go, so go their profits. Waste handling has somewhat fewer variables than manufacturing or retail.

Take a look at the charts for AW and see if I'm onto something here. Is Allied Waste a stock to ride for cycles? Please let me know if my logic is sound. I just might want to throw some of my tax refund into the garbage! Well, I mean,\ for a while anyway.