UPDATE 2-Republic rejects Waste Management's revised offer

(Adds Waste Management email, comparable revenues)

NEW YORK, Aug 14 (Reuters) - Republic Services Inc (RSG.N), the third-largest U.S. trash hauler, rejected on Thursday Waste Management Inc's (WMI.N) revised $6.7 billion offer to buy it.

On Monday, industry leader Waste Management raised its unsolicited takeover bid for Republic by about 9 percent to try to thwart Republic's agreement to buy Allied Waste Industries Inc AW.N, the second-largest U.S. trash hauler.

Waste Management offered $37 per share in cash, up from its original offer of $34 a share on July 14. The new bid represents a 33 percent premium to Republic's share price prior to Waste Management's initial bid.

But the new offer "still substantially undervalues Republic," and involves significant additional regulatory risk, the company wrote in a letter to Waste Management.

"We believe a Waste Management transaction is likely to require substantially greater divestitures than a merger with Allied Waste," the letter said.

Houston-based Waste Management tried to address antitrust concerns in its new bid by offering to pay Republic a $250 million break-up fee if the deal were blocked by regulators. It also offered interest if the deal failed to close by a set date.

Waste Management, with 2007 revenue of $13.31 billion, has about a third of the U.S. landfill and collection business. Republic had revenue of $3.18 billion last year, while Allied Waste had revenue of $6.07 billion.

Republic concluded that Waste Management's revised proposal could not be reasonably expected to be a transaction that is more favorable to Republic shareholders than the merger now underway between Republic and Allied, according to the letter.

Because the revised proposal does not offer shareholders a better deal, Republic can not furnish information to or discuss a combination with Waste Management according to the terms of its agreement with Allied.

Waste Management spokeswoman Lynn Brown said in an e-mail the company would put out a statement in response. (Reporting by Helen Chernikoff, editing by Braden Reddall)