Cerberus pulls offer for United Rentals
NEW YORK (Reuters) - United Rentals Inc. (URI.N) said on Wednesday that Cerberus Capital Management CBS.UL is withdrawing its $4 billion takeover offer for the equipment rental company.
United Rentals stock closed down 31 percent to $23.50 after falling 27 percent following an earlier Reuters report that Cerberus was prepared to back out of the deal.
"Cerberus is not prepared to proceed with the purchase of United Rentals on the terms set forth in its merger agreement," United Rentals said in a statement. The statement did not say if Cerberus was trying to negotiate a lower price.
Cerberus said that no material adverse change has occurred at United Rentals, the company said, meaning Cerberus will likely be the one responsible for paying the $100 million fee for the deal falling apart. New York-based Cerberus, a private equity firm and hedge fund, originally offered $34.50 per share for the company.
Greenwich, Connecticut-based United Rentals said Cerberus' rejection of the deal was "unwarranted and incompatible with the covenants of the merger agreement."
The rental company said it has met all the closing conditions of the deal and is prepared to complete it promptly.
Greenwich, Connecticut-based United Rentals, with more than 690 rental locations in 48 states, Canada and Mexico, rents everything from backhoes and excavators for demolition work to welders and generators needed for pipe fabrication.
Cerberus' agreement to buy the company in July came right as the credit markets seized up from the subprime mortgage meltdown. That led to a string of leveraged buyouts falling apart, as buyers became concerned about companies' financial future and banks got stuck with buyout debt that they couldn't offload from their balance sheets.
United Rentals said Cerberus received binding commitment letters from its banks to provide financing for the transaction through required bridge facilities.
Cerberus may be more concerned with United Rentals' finances than pressure on the deal's debt package.
United Rentals said free cash flow in the third quarter was $43 million, compared with $123 million in the year-ago period. The company said the drop in free cash was due to increased use of working capital. Private equity firms need strong cash flows to pay down debt used for leveraged buyouts, and cash is a big factor in the debt financing.
But United Rentals said on Wednesday that its business continues to perform well, with strong third quarter results reported October 31 and success with its revised strategic plan.
Apollo Management LP, which as of July owned about 18 percent of the voting power of United Rentals' stock, agreed at the time to vote its shares in favor of the deal. Apollo founder Leon Black is on the United Rentals board.
Last week, United Rentals' high-yield debt offering failed to price, according to KDP Investment Advisors.
The offering may get done this week if the economy holds steady, KDP said, but the market could get crowded if wireless carrier Alltel Corp's (AT.N) high-yield offering hits the market.
The pricing of United Rentals' debt offering came at a difficult time, with the credit markets taking a further hit in recent weeks from large losses on Wall Street.
The high yield debt offering is led by Credit Suisse (CSGN.VX), Banc of America (BAC.N) Securities, Morgan Stanley (MS.N) and Lehman Brothers LEH.N.
Investment bank UBS AG (UBSN.VX) advised United Rentals on the deal. The bank declined to comment.
(Reporting by Michael Flaherty; Editing by Tim Dobbyn)
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