United Rentals to acquire RSC

United Rentals is to acquire RSC Equipment Rental in a cash-and-stock transaction valued at US$18 per share, or a total enterprise value of $4.2 billion, including $2.3 billion of net debt. It is the largest acquistion ever in the equipment rental market.

The acquisition will combine the largest two general equipment rental firms in North America and create a company with combined revenues of US$3.9 billion, more than treble the size of its two closest rivals, Sunbelt Rentals and Hertz Equipment Rental Co (HERC).

The new United Rentals will have an total fleet value of around $7 billion (at original cost) and an estimated North American market share of 12-13%, combining United's 8 to 9% share with RSC's 4 to 4.5%.

The combined depot network will number almost 1000 locations, although United said in a conference call to investors that between 5% and 10% of the total - 50 to 100 locations - will close as a consequence of the acquisition.

Michael Kneeland, president and CEO of United Rentals, and Jenne Britell, United's chairman, will remain in their posts. RSC's CEO, Erik Olsson will stay on during the transition.

In a joint announcement, United and RSC said the proposed deal would create a business with a more attractive business mix, greater scale and enhanced growth prospects, including an acceleration of United Rentals' growth with industrial customers.

The two said synergies would lead to $200 million in annual cost savings.

The boards of directors of both companies have unanimously approved the proposed transaction and recommended that their respective stockholders approve the proposed transaction. Oak Hill Partners, which owns 33.5% of RSC, has agreed to vote in favour of the deal.

Michael Kneeland said the transaction was a transformative moment for United; "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 chief executive officer 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."

Under the proposed transaction, RSC shareholders will own 30% of the new United Rentals. The $18 acquisition price of RSC's stock represents a 58% premium over the closing share price on 15 December.

United will fund the cash portion of the acquisition cost through existing debt sources and by raising new debt.

The deal provides a stunning end to 2011 for the rental sector, with the largest two consolidators themselves merging. The deal comes after a difficult three years for US rental companies during which they have had to restructure in the face of depressed end markets.

The acquisition presents a challenge not just to United, but to the other big renters in the US and also equipment suppliers, for whom United Rentals' buying power now assumes an even greater significance.