Monday, August 15, 2011
Antitrust Institute Urges Probe of Waste Management’s Acquisition of Oakleaf
This posting was written by John W. Arden.
The Justice Department Antitrust Division should investigate Waste Management’s acquisition of Oakleaf Global Holdings, the leading national broker of waste disposal and recycling services, the American Antitrust Institute (AAI) recommended in an August 10 letter to Sharis Pozen, Acting Assistant Attorney General in charge of the Antitrust Division.
As a result of 20 years of passive merger controls, the waste management industry “has now reached what should be seen as a Code Red competitive condition because of the concentration of landfill ownership in the hands of WM and Republic,” according to AAI President Albert A. Foer.
“It is therefore a matter of some urgency to investigate this latest acquisition with an elevated level of scrutiny,” Foer wrote.
Waste Management is the nation’s largest solid waste disposal company. Oakleaf “is by far the leading national broker, serving large commercial companies such as Walmart and Target,” the letter said. The broker has created a national network of relatively small local haulers, which can compete for national business against Waste Management and Republic Services, the second largest solid waste disposal firm, in terms of price and service. It has accomplished this through one-year contracts.
Although Waste Management has stated its intention to keep Oakleaf’s business model intact, acquiring companies in this industry often replace the acquired company by capturing its customers and waste streams, the letter stated. If Oakleaf is absorbed into Waste Management, “[t]he strong temptation will be to take over the local business directly.”
According to AAI, the disappearance of Oakleaf would mean that former Oakleaf clients would have to contract with Waste Management or Republic or undertake the costs of separate contracts with many local or regional haulers. A reduction in the number of horizontal competitors “is likely to deprive them of an important choice and is likely to result in increased prices and/or costs.”
An important question for an investigation would be whether an alternative national broker would be likely to emerge within a relatively short time, the letter concluded. “Are the circumstances such that Oakleaf could be replicated with relative ease and swiftness, or will this acquisition result in a prolonged consolidation in the market.”
The letter appears here on The Antitrust Institute’s website.
On July 28, Waste Management announced its acquisition of Oakleaf and its primary operations for $425 million, subject to working capital and other adjustments. The announcement appears here on the Waste Management website.