Monday, November 19, 2007

United Rentals Sues Cerberus Over Failed Deal

Another collapsed buyout has hit a court’s docket.
United Rentals sued Cerberus Capital Management on Monday over the private equity firm’s cancellation of a $4 billion buyout of the company. The lawsuit, filed in Delaware’s Court of Chancery, seeks to force Cerberus to complete the deal and could test the use of breakup fees as a way to cancel merger agreements.
“United Rentals believes that the repudiation, which is unwarranted and incompatible with the covenants of the merger agreement, is nothing more than a naked ploy to extract a lower price at the expense of United Rentals’ shareholders,” United Rentals said in its statement. (Download the complaint below.)
United Rentals has now joined SLM, the parent of student lender Sallie Mae, and Genesco, a footwear company, in the plaintiff’s corner as they try to win legal relief amid their failed deals. Concerns over the credit market have played a major role in the demise of several deals, leaving the courts to sort through the mess.
Last week, Cerberus declared that it would walk away from the deal it struck in July. Oddly enough, it said it was not declaring a material adverse change in the rental equipment provider, a magic legal phrase that would let it end the deal without penalty. Instead, Cerberus said it would pay the $100 million breakup fee.
In its announcement Monday, United Rentals said that it had held a meeting last week with Cerberus’s chief executive, Stephen A. Feinberg. At that meeting, Mr. Feinberg told the company that his firm did not want to force its banks to fulfill their commitments. The private equity firm also confirmed that there was no adverse change.
United Rentals is arguing that Cerberus cannot claim financing difficulties, as it already has commitment letters from banks in hand. The company also says that a “specific performance” provision of the merger agreement requires the private equity firm to use that financing. Otherwise, it said, “irreparable damage would take place.”
It also argues that Cerberus is trying to buy the company on the cheap, thanks to the 32 percent stock price drop that transpired after last week’s news that the deal was faltering.

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