GREENWICH, Conn. — United Rentals last month announced it has submitted a nonbinding proposal to acquire about 72 percent of the equity interest in Miami-based Neff Corp. for about $314 million. The proposed transaction, supported by GE Capital, the Mas family and Santos Fund I — Neff's principal stockholders — would include about $37 million in United Rentals common and preferred stock and $277 million in debt.
If the deal is completed, GE Capital and other investors would purchase $90 million of newly issued United Rentals Series C preferred stock, convertible into shares of United common stock at $22 per share. Each of the approximately 6.6 million shares of Neff Class A common stock owned by public stockholders would be exchanged for 0.18 shares of United common stock. The 8.6 million shares of Neff common stock owned by the Mas family would be exchanged for shares of Series C Preferred Stock with an aggregate liquidation preference equal to the value of approximately 1.548 million shares of United common stock.
Neff appointed a two-member committee to consider the offer. The transaction requires the approval of the committee, the boards of directors from both companies, United senior lenders, Neff stockholders and the customary regulatory agencies. The transaction also requires the completion of due diligence, the signing of a definitive merger agreement and confirmation before the signing that the transaction would not negatively affect United's credit ratings. The initial reaction of Standard & Poor's, Moody's and Dow Jones was to affirm and maintain United's rating.
The acquisition would give United more than 80 percent of the voting rights in Neff. In a filing with the Securities and Exchange Commission, United said it believes it “could reduce the annual costs of the combined operations by approximately $10 million by integrating operations, improving equipment utilization, taking advantage of economies of scale, eliminating redundant costs and closing approximately 15 to 18 branches.”
United CEO Brad Jacobs told RER, “Buying Neff would be consistent with our long-term strategy, which partly is to get bigger so we can get more purchasing power and share more equipment between our stores. If we end up buying equipment even 2 percent cheaper because we're bigger, and we buy, say, $5 billion of equipment over the next five years, that'd be $100 million in savings. Bigger is better. This is a business where the cost of your assets is critical, so you have to pay the right price for fleet and acquisitions. There'd be about $10 million in cost savings if we buy Neff.”
An important issue in the deal is United's offer to exchange 10.25 percent senior subordinated “new” notes for Neff's 10.25 percent senior subordinated “old” notes. Based on early January market rates, the exchange would represent a value of about 60 cents on the dollar. The deal requires 95 percent Neff bondholder approval. However, as Jacobs told RER, “The bondholders know that their bonds were trading at 38 before we said we'd offer what today is worth 60.”
“Buying Neff would be consistent with our long-term strategy, which partly is to get bigger so we can get more purchasing power and share more equipment between our stores.”
— Brad Jacobs, United Rentals CEO
Although industry analysts expect shareholders to approve the deal, five lawsuits were filed in Delaware Chancery Court in one week last month to block it. One Neff stock owner, Jay Leonard, claimed the offer is flawed because directors and other interests who control about 70 percent of the Neff shares would receive enhanced consideration of new preferred United Rentals shares for their stock.
In other United news, the company said it expected fourth-quarter revenue for the period ended Dec. 31 to be about $750 million, 12 percent lower than expected. The company predicted rental revenue will rise 15 percent this year to $2.37 billion and that earnings will increase 11 percent to $2 to $2.10 a share. Total revenue for 2001 is expected to be $3 billion.
United Rentals is No. 1 on the RER 100, with 753 branches in 47 states, seven Canadian provinces and Mexico. Neff is No. 7 on the RER 100 and has 84 branches in 17 states.
United Bonds, Stock Upgraded
NEW YORK — Goldman Sachs upgraded its rating on the bonds of United Rentals to “outperform,” citing a number of reasons including projections of $3 billion in revenue this year, good liquidity, flexibility to age a young fleet and sufficient interest coverage based on EBITDA.
Deutsche Bank upgraded its stock recommendation on United, saying it is “encouraged by management's conservative plans to manage the business for free cash flow in 2001. … In light of United's strengths, including its management, systems, proven ability to integrate acquisitions, and geographic and customer diversity, and regardless of whether or not the Neff transaction is consummated, we believe the company's bonds are attractive and are upgrading our recommendation to ‘buy’ from ‘hold’ at this time.”
Solving the Neff Dilemma
MALIBU, Calif. — With Neff Corp.'s stock price barely above a dollar and drifting steadily downward, the highly leveraged company appeared to have only one alternative — to find a buyer quickly. Neff is viewed within the industry as having solid management, particularly on the branch level, with arguably enough cash flow to manage its significant but not necessarily insurmountable debt. The prospect of a softening ahead likely intensified Neff management's desire to attempt to salvage the company while there was still some interest. United Rentals' proposal to acquire 72 percent of Neff — about 80 percent of the voting rights — is a major step toward solving the dilemma.
Still, Neff was on the block for some time — whether officially or unofficially — and was looked at by most of the industry's major players without attracting significant interest. And given the last closing stock price before the offer was made — $1.25 — United's offer represents a 94 percent premium to Neff shareholders.
The deal as proposed by United looks attractive to the owning Mas family, who would receive preferred stock with an aggregate liquidation preference equal to the value of more than 1.5 million shares of United common stock. That would enable the Mas family to profit from the transaction and unload the company. However, at press time, the deal is far from done, and it is uncertain if public stockholders will accept the acquisition price of each share being exchanged for 0.18 shares of newly issued United common stock.
“United put forward a proposal that [might be] a lean one from Neff stakeholders' point of view, but it's a lifeline,” said John Molner of Brown Bros. Harriman & Co., a New York-based investment banking firm. “If I'm an investor in Neff, it's a very modest premium. But from the perspective of the day before the announcement [when the stock was at $1.25], it's a decent premium. At least you have a currency. No one's trading it, so they get some value for it. United is offering less than four times trailing cash flow, which is about a point to a point-and-a-half less than the kind of multiples we were seeing a year-and-a-half ago, so, if accepted, they have bought the assets at a very attractive price.”
United acknowledged that key to the deal was GE Capital's $90 million equity investment in United, which makes assumption of Neff's debt palatable without severely upsetting United's debt-to-equity ratio.
“A very big thing for us is that GE Capital would put in $90 million of equity into United Rentals at $22 a share,” United CEO Brad Jacobs told RER. “That's a pretty good endorsement.”
On a strategic level, analysts are uncertain how the acquisition of Neff would benefit United, other than simply knocking a major competitor out of the game. Already flush with more than 750 branches, United does not appear to need many of the Neff locations and already has indicated it likely would close 15 to 18 of the acquired branches.
On the other hand, as Jacobs likes to say, “size does matter,” and this acquisition would give United even greater market share, especially in Florida, Neff's epicenter, and throughout the Southeast and Southwest. United already has proved its ability to integrate large numbers of branches into its system relatively quickly, to recognize synergies and eliminate redundancies relatively seamlessly. Neff uses the same information technology system as United, and the construction orientation of its fleet would be attractive to United. And because rates have been subject to strong pressures, especially in the highly competitive Gulf region and in the Southeast overall, the elimination of competition certainly wouldn't hurt United's quest for rate stabilization.
S&P Keeps Neff on CreditWatch
NEW YORK — Standard & Poor's ratings on Neff remain on CreditWatch, where they have been since March 16, after United Rentals' proposal to acquire 72 percent of the company. The implications for the corporate credit and senior secured ratings were revised, however, to “developing” from “negative.”
S&P said if the acquisition is completed as proposed, Neff's corporate credit and senior secured ratings would be raised, putting them on par with United's ratings.
NationsRent Hires Ex-7-Eleven CFO
FORT LAUDERDALE, Fla. — Nations-Rent hired Ezra Shashoua, former chief financial officer for 7-Eleven, as executive vice president and CFO. Shashoua was expected to join the company at the end of January and replace co-founder and CFO Gene Ostrow, who was expected to remain with the company to ensure an orderly transition and continue to assist with its strategic direction.
“[Shashoua's] multiunit retail experience will be valuable to NationsRent as we continue to focus our strategy on internal growth opportunities, including our strategic alliance with Lowe's,” chairman and CEO James Kirk said.
NationsRent in October entered into an exclusive multiyear strategic alliance with home-improvement retailer Lowe's to open 60 NationsRent rental centers within Lowe's stores in 22 major markets by the end of this year.
NationsRent officials continued to be optimistic in their public statements despite a mid-January stock price of less than $2 per share. Sources close to the company have reported turnover on the management level and layoffs on various levels. NationsRent officials could not be reached for comment on this issue.
NationsRent is No. 4 on the RER 100.
Rental Stocks Stumble in 2000
NEW YORK — Whether because of a bear market or a sustained correction, many stocks got mauled last year, and the public rental companies did not escape the claws of investor fear and flight.
In a year when the Dow Jones industrial average slid 6.2 percent and the tech-heavy Nasdaq plummeted more than 39 percent, rental stocks did even worse for the most part. United Rentals (URI), No. 1 on the RER 100, fared the best of the battered bunch but still fell 22 percent in 2000. Hertz Equipment Rental Corp., part of car-rental giant Hertz Corp. (HRZ) — and thus not a pure equipment rental player — declined 32 percent.
For the three other public rental companies, the good news is it can't get much worse. National Equipment Services (NSV), down 64 percent, NationsRent (NRI), down 72 percent, and Neff Corp. (NFF), down 80 percent, each ended the year trading at less than $2 a share.
United's bid for Neff, if approved, would put one of the four remaining pure equipment rental stocks out of its misery, while the others will have to find their own antidotes for healing their market-inflicted wounds in 2001.
HERC Adds to French Rental Network
ARK RIDGE, N.J. — Hertz Equipment Rental Corp. continued its European expansion with the acquisition last month of Cogeloc SA, a six-location rental company operating in the Lyon-Burgundy area of southern France.
Cogeloc was established in 1992 and focuses on the construction and building industries. Cogeloc will become part of Hertz Equipement France, now the second-largest rental company in France with about 80 locations. The rest of HERC's 101 European facilities are in Spain, where HERC is the largest equipment rental company.
Park Ridge, N.J.-based HERC is No. 3 on the RER 100 with more than 290 North American locations.
In other Hertz news, Ford Motor Co., Dearborn, Mich., announced last month that it will pay about $710 million to acquire the publicly held portion of Hertz, including its equipment rental division. Ford, which already owns 81.5 percent of Hertz, will purchase the remaining shares for $35.50 each, up from an offer of $30 per share it made in September.
The companies expect to close the transaction early in the second quarter.
After the announcement, Standard & Poor's reaffirmed Hertz's long-term credit ratings on CreditWatch with positive implications.
Hertz's current ratings incorporate Ford's 81.5 percent ownership stake and its strategic importance as Ford's largest customer. However, if Ford extends financing support to Hertz for its capital needs, Hertz's ratings likely would be upgraded to Ford's level, according to S&P's. If Hertz continues to self-fund, its ratings likely would be affirmed.
ARA Changes 2002 Show Format
MOLINE, Ill. — The American Rental Association announced dates and locations for its 2001 City Conferences and Product Showcases, and revised its 2002 schedule to include only one conference with a trade show.
In addition, the ARA said it will test a new format — offering educational seminars but no product exhibits — at an undetermined time and place this year, with plans to hold three such events in 2002.
ARA City Conferences this year will be held in Fort Worth, Texas, July 22-24, and Nashville, Tenn., Nov. 4-6. The national show begins Feb. 26 in Orlando, Fla.
The 2002 conference is scheduled for early November in Chantilly, Va., a suburb of Washington.
Louisiana Cat Rental Opens Fifth Branch
MONROE, La. — Louisiana Rents recently opened its fifth branch in the state here, just three weeks after opening its fourth, in Port Fourchon. With its corporate office at the Caterpillar dealership in Reserve, the network of Cat Rental Stores opened in late 1999 with branches in Morgan City, Gonzales and Lafayette.
Rental veteran Tommy Gilmer manages the Monroe facility.
The company hopes to add branches in New Orleans, Shreveport and Lake Charles this year.
Waco Scaffolding Adds Seattle Branch
CLEVELAND — Waco Scaffolding & Equipment opened a branch in Seattle, the company's first in the Northwest. The branch is managed by Steve Powell, a 27-year industry veteran.
Waco is No. 42 on the RER 100.
Maxim Acquires Carolina Crane
PITTSBURGH — Maxim Crane Works, No. 25 on last year's RER 100, acquired Carolina Crane, based in Augusta, Ga., and closed three competing locations.
The proximity of Maxim and Carolina Crane branches in Augusta as well as Columbia and Charleston, S.C., allowed consolidation into single facilities in those three markets, according to Maxim southeast region vice president Ray Graham.
As part of the restructuring, Maxim named John Mendillo, Tip Pirkle and Steve Sears operations managers for the respective territories.
Maxim now operates 45 locations nationwide and has completed more than 10 acquisitions since Bain Capital became the controlling investor in 1998.
RDO Drops Lawsuits, Renews Deere Pacts
FARGO, N.D. — RDO Equipment and John Deere Construction renewed their dealership agreements and dismissed all claims pending in arbitration.
RDO had filed suit against Deere in July, alleging that the company violated Minnesota law by planning to terminate its dealership agreements. The suit claimed Deere's actions were based on a strategic objective to own or control a significant percentage of its distribution channel.
Moline, Ill.-based Deere revoked its termination notices Dec. 29, according to RDO.
RDO also dismissed all claims in federal court against Credit Suisse First Boston, which is involved in a joint venture with Deere, called Nortrax, to acquire Deere dealers.
Terex Names New Distributor
ROCK HILL, S.C. — Terex Light Construction named Admar Supply its newest distributor.
The Rochester, N.Y.-based company, No. 73 on the RER 100, represents Terex's new line of asphalt and soil compaction rollers throughout New York.
Hyster MidEast Adds BGM Branch
CINCINNATI — Hyster MidEast acquired the Lexington, Ky.-branch of BGM Equipment. It was Hyster's second acquisition in 2000. Hyster bought the Clarklift forklift division of Brambles Equipment Services in August.
Hyster general manager Bob Risheill said the latest acquisition confirms the company will “continue to invest in this business and expand our operations.”
