(Adds quote from Cleanaway CEO, details on funding of deal)
Dec 11 (Reuters) - Cleanaway Waste Management CWY.AX said on Monday it would buy smaller rival Tox Free Solutions TOX.AX for A$3.425 per share in cash, valuing Tox at A$671 million ($503.72 million) on a diluted basis.
The Cleanaway offer is at a 20.6 percent premium to Tox's closing level on Friday of A$2.84.
Under the deal, Tox shareholders will be entitled to receive an interim dividend of A$0.05 per share in fiscal 2018, and Tox expects to declare and pay a fully franked special dividend on or shortly before the implementation of the deal.
In a separate statement, directors of Tox said they unanimously recommended that shareholders vote in favour of the Cleanaway offer.
"The transaction is expected to deliver approximately A$35 million in annual synergies and be strongly accretive for earnings per share and free cash flow per share when integration is complete," said Cleanaway Chief Executive Officer and Managing Director Vik Bansal.
To fund the acquisition, Cleanaway said it would launch an A$590 million entitlement offer, offering one new share for every 3.65 existing shares held, at A$1.35 per new share.
($1 = 1.3321 Australian dollars)