Prognostication Perils

Jun 15 2008

Based on the events of Friday afternoon, I’m reminded of the only phrase I can recall from Nancy Reagan’s tenure as First Lady: “Just say no”.

About an hour before Wall Street closed for the week, I got a call from an old friend who’s an equity analyst for an east coast hedge fund. He wanted to know whether it was possible that there was any truth to the rumor he’d heard about a merger in the waste industry.

That merger? Republic Services and Allied Waste Industries.

While it turns out that I should have just said no, that I had no idea, and moved on to other matters, I first told him that I’d heard no such rumor. Not that all, or any, rumors run through me before they’re generally available to the rest of the populace, mind you, but I do have some experience in the waste industry, including some related to M&A activity. So his question wasn’t out of place, my specific ignorance of this rumor notwithstanding.

I thought about it for a bit, and then, while allowing that of course anything’s possible, told him that this was highly unlikely, for a lot of reasons. For instance, have a look at these two track records:

The Beast


One of those two report cards is decidedly not like the other, yet this is billed as a “merger of equals”. Hey – we’re in the 21st Century – so we’ve got to say whatever makes the kids feel good about themselves, I guess. Everyone gets a trophy! I realize, of course, that they’re roughly equal in market cap, with Allied being the bigger of the two by several hundred million dollars, but that market cap was smaller than RSG’s before the rumor of a deal leaked out, and with good reason.

Feel free to have a look for yourself – RSG has outperformed most of the waste industry by a noticeable margin in the last five years.
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