Cerberus backs out of $4B deal for United Rentals
"United Rentals views this repudiation by Cerberus as unwarranted and incompatible with the covenants of the merger agreement," the company said.
United Rentals said the private equity firm did not cite a material adverse change, which typically is what's required for a buyer to back out of a deal. The merger agreement included a $100 million breakup fee Cerberus would have to pay the company if the deal failed to close, and United Rentals said it has hired a law firm as it considers possible legal remedies.
A call to a Cerberus spokesman was not immediately returned.
In the July 22 agreement, Cerberus was to acquire United Rentals for $34.50 per share in cash, United Rentals said. Including $2.6 billion of assumed debt, United Rentals valued the deal at about $7 billion.
The end of the deal followed reports earlier in the day that Cerberus would pull out. Shares of United Rentals plunged early Wednesday morning, prompting the New York Stock Exchange to briefly halt trading, citing "unusual market activity" in the company's stock.
United Rentals shares fell $10.51, or 31 percent, to $23.50 after dropping to as low as $21.91, a new 52-week low.
Earlier in the day, the company extended a debt tender offer after failing to secure enough buyers to cover all of the $2 billion to help finance the deal. The tender, which was scheduled to close Tuesday, was extended until midnight Friday.
Before the collapse of the deal was announced, JPMorgan analyst Stephen Volkmann said in a note to investors that Cerberus paid "near the high end of the comparable transaction range," and companies in United Rental's peer group have traded significantly lower. In addition, "some of Cerberus' assumptions behind the deal were aggressive," Volkmann said.
United Rentals, which rents construction equipment, trucks, traffic control devices and other heavy-duty items, assumed it could achieve cumulative rental rate gains of 5.5 percent by 2009, though third-quarter rates were down 2 percent, he said.
United Rentals said it has received tenders for about 99.9 percent of its 6.5 percent notes due 2012, about 98.6 percent for 7.75 percent notes due 2013, and about 99.1 percent of 7 percent notes due 2014. Those amounts are only slightly more than the company said it had lined up at the end of October.
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