Cerberus Escapes $7 Billion United Rentals Deal

Dec 24 2007 | 10:29am ET

Christmas came a few days early for Cerberus Capital Management—but it left several other hedge funds out in the cold. The New York-based alternatives investment giant won the right to walk away from its deal to acquire United Rentals, saving the firm from having to buy a company for billions more than it is currently worth.

Delaware’s chancellor this week ruled that Cerberus believed its proposed $7 billion buyout of United Rentals, which rents out tools and construction equipment, included a break-up clause. The firm had agreed to pay $34.50 per share for the company; United Rental’s shares were trading at roughly half that after Cerberus’ court victory.

“One may plausibly upbraid Cerberus for walking away from this deal, for favoring their lenders over their targets, or for suboptimal contract editing, but one cannot reasonably criticize the firm for a failure to represent its understanding of the limitations on remedies provided by this merger agreement,” Chancellor William Chandler ruled.

The decision will sting for several large hedge funds that are also large United Rentals shareholders, including SuttonBrook Capital, which holds a nearly 5% share in the company.

Cerberus, which will have to pay a $100 million breakup fee, said in a statement, “We regret the negative comments that were directed at us by URI, and are pleased that the court chose to decide the case on the merits and confirm that Cerberus acted in accordance with its rights and obligations.”

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