Breaking Up Is Expensive to Do

Cerberus pays a kill fee to walk away from the United Rentals deal.
Stephen TaubDecember 26, 2007

Another private equity deal has fallen apart. United Rentals said Cerberus Partners L.P. will pay $100 million to terminate its agreement to buy the equipment-rental company. The deal would have cost the private equity firm $4 billion if it was completed.

United Rentals call off the merger several days after Delaware Court of Chancery Chancellor William B. Chandler III ruled that Cerberus could cancel the deal. “In light of Chancellor Chandler’s December 21st opinion, the United Rentals Board of Directors has determined that the company is best served by terminating the merger agreement and the constraints it imposes,” said a United Rentals spokesperson. “We remain committed to enhancing shareholder value, and believe the immediate need is to move forward and focus our energies on our business.”

“Cerberus has consistently said it would honor its obligations regarding the $100 million guarantee,” Cerberus spokesman Timothy Price told Bloomberg. “And that situation hasn’t changed.’”

United Rentals had argued in court filings that Cerberus was trying to use the turmoil in the U.S. credit markets related to the subprime mortgage crisis as a pretext to reduce the deal’s price tag, according to the wire service. But, Cerberus asserted that it was free to call to pull out of the deal if it paid the termination fee.

United Rentals also announced that it will not appeal the Delaware Chancery Court opinion and is terminating its previously announced debt repurchases. The debt tender offer was United Rentals North America 6 ½ percent Senior Notes due 2012, 7 ¾ percent Senior Subordinated Notes due 2013, and 7 percent Senior Subordinated Notes due 2014.