Waste Management, the largest waste removal company in the US, has pulled out of a $6.73bn hostile bid for Republic Services, the third largest, saying that credit market turmoil made it impossible to secure appropriate financing.

The withdrawal of Waste Management's takeover attempt, after it earlier had two offers rejected, opens the way for Republic to complete its merger with Allied Waste (NYSE: AW - News) , the second-largest trash hauler.

"As lending markets contracted and contracted ... the pricing went up," said David Steiner, chief executive of Waste Management.

Waste Management first bid for Republic in July in an attempt to break up the agreement it had to take over Allied, which threatened to create a more formidable competitor.

Republic rejected the offer saying it was risky, faced tough regulatory hurdles and responded with poison pill terms to deter the unwanted takeover. Republic also rejected a later sweetening of the bid. In recent weeks, the chances of a deal were hit further as pumping up leverage just as the US economy deteriorated looked increasingly risky.

Mr Steiner said that banks would only agree "flexi terms" that would vary according to market interest rates, rather than one Waste Management could lock in until closing the deal.

"We had the risk of not knowing what the specific terms of the debt would be," he said. "We didn't feel it was prudent to risk a great business model in such uncertain times."

But he admitted that: "We never got to the point of serious discussion where we could do due diligence."

Republic and Allied are continuing with their deal, an all-stock agreement that offers Allied shareholders 0.45 shares in Republic for each share in Allied they hold. "The hostile takeover proposal from Waste Management did not deter us or slow down [the merger with Allied] in any way," Republic said.

The combination will better be able to challenge Waste Management, whose annual revenues last year of about $13bn dwarves that of Republic, which made $3bn, and Allied, which brought in $6bn. Together the three control about 42 per cent of the market, according to S&P analysts.

Its shareholders will vote on the deal on November 14. Allied said it expects the deal to close in mid-December.

Waste Management said it has $500m cash and liquid investments and that its third-quarter profit beat analysts' estimates. Shares in Waste Management rose 13 per cent to $29.09, Allied was up 17 per cent at $9.95 and Republic rose 4 per cent to $23.31 by midday in New York.