GREENWICH, Conn. — In the largest merger in the history of the construction equipment rental industry, United Rentals and RSC Holdings have entered into a definitive merger agreement under which United Rentals — the rental industry's largest company — will acquire RSC, the industry's second-largest firm, in a cash-and-stock transaction valued at about $1.9 billion.
United has agreed to acquire RSC for $18.00 per share, a total enterprise value of $4.2 billion, including $2.3 billion of net debt. The boards of directors of both companies unanimously approved the proposed transaction and recommended that their respective stockholders approve it as well. United Rentals and RSC expect the transaction to close in the first half of 2012.
The acquisition will significantly beef up United's industrial business, reducing its dependence on the sluggish commercial construction market. Industrial equipment rentals will now form about 35 percent of United Rentals' revenue, compared with its current percentage of about 16 percent, with commercial construction dropping from about 60 percent of its total revenue to about 50 percent.
The merger is expected to 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. United Rentals and RSC have already begun working on a plan to facilitate a smooth integration of the businesses and realization of more than $200 million of potential cost savings.
“This transaction marks a transformative moment in our company's history,” said Michael Kneeland, president and CEO of United Rentals. “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 CEO 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 CEO of United Rentals, and Jenne Britell, United Rentals' chairman, will remain in their positions at the combined company.
The dramatic merger, the largest in the industry's history, provoked immediate reaction in the rental industry.
“I think this merger is terrific for the rental industry,” leading rental industry consultant Dan Kaplan of Daniel Kaplan Associates told RER. “United Rentals is an incredibly and professionally managed company and will set the standard for the industry to follow, operating at a level that other companies have yet to even imagine. United is advancing the rental process and improving its rental rate structure, and is leading the way for the rest of the industry. I think the synergies are far beyond what has been discussed at this point in terms of savings in pricing, SGNA and eliminating overlapping branches. The key is to have more equipment available in a store and this will give them that opportunity.
“The rental industry is still so fragmented. United Rentals has about 7-percent market share; RSC about 4 percent. In contrast, in the car rental industry, Hertz has about 28-percent market share. United Rentals is a New York Stock Exchange company managed by professionals who are dedicated to constantly improving performance and I expect it to continue to improve with this merger.”
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 cash portion of the transaction will be financed through new debt issuance and drawing on current loan facilities. United Rentals has obtained commitments for $4 billion in loans to support the acquisition, Bloomberg Business Week has reported. According to BBW, Morgan Stanley, Bank of America Corp., and Wells Fargo & Co. are providing the financing, including a $650 million secured bridge loan, a $1.55 billion unsecured bridge loan and a $1.8 billion asset-backed revolving line of credit, according to a regulatory filing.
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 to 4.5x. As a result, United Rentals expects to retain its current corporate credit ratings. United Rentals intends to repay 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.
Headquartered in Greenwich, Conn., United Rentals is No. 1 on the RER 100 with an integrated network of 541 rental locations in 48 states and 10 Canadian provinces. RSC Holdings, based in Scottsdale, Ariz., is the holding company for the operating entity RSC Equipment Rental, which is No. 2 on the RER 100. RSC has an integrated network of 452 branch locations across 42 states in the U.S. and three provinces in Western Canada.