United to Buy RSC in a $4.2B Transaction

Wed December 21, 2011 - National Edition
Construction Equipment Guide

United Rentals Inc. and RSC Holdings Inc. entered into a definitive merger agreement under which United Rentals will acquire RSC in a cash-and-stock transaction valued at $4.2 billion, including $2.3 billion of net debt. Both boards of directors unanimously approved the proposed transaction and recommended that their respective stockholders also approve it.

The transaction will be financed with 60 percent cash and 40 percent stock. Each outstanding share of RSC common stock will be converted into the right to receive $10.80 in cash and 0.2783 of United Rentals share. United will issue new debt and draw on current loan facilities to finance the cash portion. Once completed, the company will be 70 percent owned by United Rentals shareholders.

United estimates synergies from combining the companies of more than $200 million annually, which they expect to realize within the first two years.

Combining the companies will create a leading North American equipment rental company with a more attractive business mix, greater scale and enhanced growth prospects. The combination also is expected to accelerate United Rentals’ growth with industrial customers as well as provide a lower cost base and a less volatile revenue profile to better position the company through all phases of the business cycle. The new United Rentals is well-positioned to benefit from increased rental penetration, the continued strength of the industrial sector, serving customers across a variety of industries and a recovery in construction activity, according to the companies.

Michael Kneeland, president and chief executive officer of United Rentals said, “This transaction marks a transformative moment in our company’s history. Combining the experience and resources of two top performing equipment rental companies creates an exceptional company. The new United Rentals will build upon the best practices and management teams from both companies to deliver superior customer benefits and enhanced value for our stockholders. With the best talent in the industry, we have a tremendous opportunity to become the supplier of choice for customers throughout North America.”

Erik Olsson, RSC’s chief executive officer and president, said, “RSC has a strong track record of profitable growth and we are proud of what we have built. At the same time, I am confident that by partnering with United Rentals we can accomplish far more than either company could have achieved on its own, including significant synergies. As a result, the transaction delivers significant value to our shareholders. Our similar customer-centric cultures and commitment to operational excellence will provide even greater value to our customers and facilitate a smooth integration. I look forward to helping to lead the integration process during a transition period.”

Upon the close of the transaction, three of RSC’s independent directors will receive seats on United Rentals’ existing board of directors.

Michael Kneeland, president and chief executive officer of United Rentals, and Jenne Britell, United Rentals’ chairman, will remain in their positions at the combined company.

Transaction Highlights

Upon the closing of the transaction, each outstanding share of RSC common stock will be converted into the right to receive $10.80 in cash and 0.2783 of a share of United Rentals common stock, subject to the terms and conditions of the merger agreement.

The transaction provides immediate value to RSC stockholders through the cash component, as well as continued participation in future value creation of United Rentals through their ownership of approximately 30 percent of United Rentals on a fully diluted basis. The price of $18.00 per share represents a 58 percent premium over RSC’s closing price as of Dec. 15, 2011.

The cash portion of the transaction will be financed through new debt issuance and drawing on current loan facilities. United Rentals has obtained financing commitments from Morgan Stanley Senior Funding Inc., Bank of America Merrill Lynch and Wells Fargo in support of this transaction. By the end of 2012, the combined company’s leverage ratio is expected to be in line with United Rentals’ previously stated target range of 3.5x – 4.5x. As a result, United Rentals expects to retain its current corporate credit ratings. United Rentals intends to re-pay the outstanding amounts on RSC’s existing Senior Secured Credit Facilities and Senior Secured Notes due 2017, and assume all of RSC’s existing unsecured debt.

United Rentals’ Board also announced its intention to authorize after closing a stock buyback of up to $200 million of the company’s common stock. United Rentals’ current intention is to complete the stock buyback within six to 12 months after closing.

The deal is expected to be accretive to United Rentals’ cash earnings per share in the first full year after closing. The transaction is anticipated to provide more than $200 million of annual cost savings through the elimination of redundant infrastructure, branches and overhead, two thirds of which are expected to be achievable within the first twelve months following the closing of the transaction. The combination also is expected to provide meaningful revenue synergies from the expanded footprint, in particular with national and industrial account relationships and provide additional cash flow upside through optimization of the combined fleet and capital expenditures.

The proposed transaction is subject to the conditions of delivery of tax opinions and a solvency opinion as well as customary closing conditions, including approval by United Rentals and RSC stockholders, absence of a United Rentals and RSC material adverse effect and notification and clearance under certain antitrust statutes. United Rentals and RSC expect the transaction to close in the first half of 2012.

Oak Hill Capital Partners has agreed to vote its 33.5 percent shareholding in RSC in favor of the transaction.

Special meetings of the United Rentals’ and RSC’s respective stockholders will be held as soon as practicable after the preparation and mailing of the joint proxy statement/prospectus to be included in the registration statement on Form S-4 to be filed by United Rentals to register the shares of United Rentals common stock issuable in connection with the proposed transaction with the Securities and Exchange Commission and the subsequent mailing to United Rentals’ and RSC’s respective stockholders. The joint proxy statement/prospectus is expected to be mailed as promptly as practicable after the effectiveness of this registration statement.

Centerview Partners and Morgan Stanley & Co. LLC acted as financial advisors to United Rentals, and Sullivan & Cromwell LLP acted as the company’s legal advisor. Barclays Capital and Goldman, Sachs & Co. were lead financial advisors to RSC, and Deutsche Bank also provided financial advice. Paul, Weiss, Rifkind, Wharton & Garrison LLP and Debevoise & Plimpton LLP acted as RSC’s legal advisors.