United Rentals & RSC Merge

United Rentals, Greenwich, Conn., and RSC Holdings, Scottsdale, Ariz., shocked the equipment rental industry on Dec. 16 with a surprise announcement that the two companies had reached a definitive merger agreement under which United Rentals will acquire RSC in a cash-and-stock transaction valued at id="mce_marker"8 per share or about id="mce_marker".9 billion, plus take on RSC’s estimated $2.3 billion of net debt, giving the deal a total enterprise value of $4.2 billion.

The boards of directors of both companies unanimously approved the proposed transaction and recommended that their respective stockholders approve the proposed transaction. United Rentals and RSC expect the transaction to close in the first half of 2012.

The reverberations from a deal of this magnitude are likely to be felt for a while as the two largest equipment rental companies in North America work out the details to integrate the businesses, consolidate overlapping branches as necessary and determine equipment and staffing needs.

The immediate reaction to the deal was generally positive. “The industry has experienced consolidation in all forms and at various levels for over a decade. With this action, we reach a new level of business acumen that will continue to propel the industry forward. The equipment rental industry is a growth industry with unlimited potential for business growth and expansion for rental businesses of all sizes,” says Christine Wehrman, executive vice president and CEO, American Rental Association, Moline, Ill.

“While an announcement of this magnitude is a surprise when announced, it is an indication of further evolution and definition of our industry, which means growth in rental revenues for the equipment rental business in the future,” Wehrman says.

“This is very constructive for the industry,” says Dan Kaplan, an equipment rental industry expert and founder of Daniel Kaplan Associates, Morristown, N.J. “United Rentals is professionally managed and metrically driven to set standards. They are rental-oriented and will give pricing leadership. This isn’t like a hedge fund or investment company coming into the industry with different views.”

Kaplan has been predicting such a merger for years because of the fragmentation in the rental industry. “When it comes to rental cars, Hertz has a 28 percent market share. After this merger, United Rentals will have about a 10 percent market share.
There is room to grow. I’m excited about this because United Rentals does things in a professional way and they are building tomorrow’s rental company that is very sophisticated and improving the rental industry,” Kaplan says.

United Rentals is the largest equipment rental company in the world, with an integrated network of 541 rental locations in 48 states and 10 Canadian provinces. RSC currently has an integrated network of 452 branch locations across 42 states in the United States and three provinces in Western Canada.

The companies said the proposed transaction 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.

RSC has said that about 60 percent of its revenues are derived from industrial rental while United Rentals has been concentrating on increasing its industrial rental activity, which accounted for about 20 percent of the company’s revenue in 2010.

“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,” Michael Kneeland, United Rentals president and CEO, said in a press release issued on Dec. 16.

The companies said the new United Rentals will be well-positioned to benefit from increased rental penetration and the continued strength of the industrial sector by serving customers across a variety of industries and a recovery in construction activity.

United Rentals and RSC said they already have begun working on a plan to facilitate a smooth integration of the businesses and realization of over $200 million of potential cost savings.

Erik Olsson, RSC’s president and CEO, said in the press release, “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. Kneeland and Jenne Britell, United Rentals’ chairman, will remain in their positions at the combined company.

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 companies said.

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 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.

from the Rental Pulse