Aug. 11 (Bloomberg) -- Waste Management Inc., the largest North American trash hauler, raised its unsolicited offer for Republic Services Inc. by 8.8 percent to $6.73 billion to try to halt the smaller rival's purchase of Allied Waste Industries Inc.

The bid was increased to $37 a share in cash from a July 14 offer of $34 a share, Houston-based Waste Management said today in a statement. The new bid is 6.1 percent higher than Republic's closing share price on Aug. 8. Republic rose 1 cent to $34.87 at 10:31 a.m. on the New York Stock Exchange.

Waste Management Chief Executive Officer David Steiner is seeking to add Republic's customers as a slowing U.S. economy reduces demand and rising fuel prices increase costs. Republic CEO James O'Connor has criticized the takeover as an ``opportunistic'' effort to impede its merger with Allied. Steiner's new offer includes a breakup fee and a provision that may raise the price paid to Republic's shareholders.

The new features ``help to sweeten the deal a little bit beyond the additional cash component and demonstrate that Waste Management is serious about pursuing this transaction,'' Fitch Ratings Ltd. analyst Stephen Brown said in a telephone interview.

Waste Management fell 21 cents to $35.80 in New York trading. The shares gained 10 percent this year through Aug. 8. Allied Waste fell 14 cents, or 1percent, to $13.35. The shares climbed 22 percent this year before today.

Waste Management's new offer includes an agreement to pay $250 million if the government blocks the merger on antitrust grounds and an ``interest component'' that increases the price paid to Republic shareholders if the deal takes longer than expected to complete.

Republic, the third-largest trash mover in North America, agreed on June 23 to buy Allied Waste for about $6.1 billion.

Republic Defense

Since Waste Management's earlier bid, Republic has announced restrictions on share purchases and made it easier for Cascade Investment LLC, its largest shareholder and an opponent of the Waste Management offer, to increase its stake. Cascade is an investment vehicle of Microsoft Corp. Chairman Bill Gates.

Before today's announcement, some Republic shareholders called Waste Management's takeover offer superior to the merger with Phoenix-based Allied. The Republic-Allied proposal provides less value and greater risk, the New Jersey Carpenters Pension Fund and the New Jersey Carpenters Annuity Fund said in a complaint filed July 25 in Delaware Chancery Court in Wilmington.

Steiner and O'Connor have said that their merger proposals each would save about $150 million annually in duplicate costs. Waste Management said today it could achieve savings of as much as 35 percent more than its original estimate.

`Working Diligently'

``We've been working diligently to put forth a revised proposal that addresses each of Republic's issues,'' and the company aims to conclude a merger by early 2009, Steiner said today on a call with analysts. ``We've made a firm commitment backed up by financial compensation in the event we do not perform.''

Standard & Poor's Ratings Services and Fitch Ratings both put Waste Management on watch for possible downgrades after the company's first offer for Republic, citing debt that would be needed to complete the transaction. Both ratings companies also said antitrust approval may require divestitures.

``Although the integration of WMI's recent acquisitions has generally been relatively smooth, the much larger acquisition of Republic could be significantly more complicated,'' Fitch said.

Republic spokesman Will Flower didn't immediately return a voicemail message.

To contact the reporter on this story: Rob Delaney in Toronto at robdelaney@bloomberg.net.

Last Updated: August 11, 2008 10:33 EDT