A United States Court of Appeals judge affirmed a district court decision negating charges of securities fraud as a result of the failed 2007 merger between United Rental and RAM Holdings and RAM Acquisition Corp., affiliates of Cerberus Capital Partners.
At the outset of the bidding process, in April 2007, United Rentals’ common stock jumped from $27.55 per share to $32.36 per share on news that United was exploring strategic alternatives. After entertaining at least one other potential bidder, United and RAM signed a merger agreement in July of 2007. Over the next few months as the parties worked to close the deal, economic conditions, especially in the credit and debt markets, weakened. In late August 2007, RAM contacted United Rentals’ bankers and said that it wanted to re-negotiate the purchase prices as a result of deterioration in the credit markets. United refused to re-open negotiations and in November Cerberus told United Rentals that RAM was repudiating the agreement, leading to United’s stock dropping from $34.37 to $23.50 in a single day.
Investors who purchased URI common stock between Aug. 30 and Nov. 14, 2007 sued, alleging that United had a duty to disclose that RAM was seeking to re-negotiate the purchase price and that there was a high likelihood the deal would fall apart. The district court found that United Rentals did not think RAM had a “walkaway” and that URI believed it had the right to demand specific performance. When URI’s representative specifically asked RAM if it was going to repudiate the contract, RAM replied in the negative. According to the summary order of the appellate court, reasonable inferences are that United Rentals did not believe the deal was seriously threatened and that there were no substantive or other renegotiation discussions between RAM and URI between Aug. 29 and Nov. 14.
Based in Greenwich, Conn., United Rentals is No. 1 on the RER 100.