URI Sues Cerberus Over Buyout Balk

By Editorial Staff

November 19, 2007

Another lawsuit now dots the landscape of broken buyout deals. United Rentals (URI) announced today that it filed a lawsuit against the holding companies formed by Cerberus Capital Management to acquire it. Cerberus agreed in July to buy the company for $4 billion.

URI said that it received a letter from the holding companies “repudiating the merger agreement even though there has been no material adverse change” in its business. URI’s statement says that the letter was received after a meeting with Cerberus CEO Stephen Fienberg, when the buyout firm asserted it would not force the underwriting banks to go through with their financing commitments. The buyout comes with a $100 million breakup fee, which Cerberus would have to pay.

The lawsuit contends that Cerberus’ backing out of the deal “is nothing more than a naked ploy to extract a lower price at the expense of United Rentals’ shareholders” and seeks to force the buyout to go through as agreed to.

News broke last Wednesday that Cerberus was considering pulling its offer for the company because of the difficulty that underwriting banks were having drumming up investor interest. Early last week, portfolio managers reported that the deal was in trouble and had not garnered sufficient support among bond buyers.

Last Wednesday underwriters pulled URI’s proposed $2.55 billion in senior notes due 2015 from the high yield bond market and $1 billion term loan from the loan market. Bank of America is the lead underwriter and is joined by Credit Suisse, Morgan Stanley and Lehman Brothers.

Representatives of Cerberus and United Rentals were not immediately available for comment.