Equipment rental company United Rentals (URI) revealed plans on Friday to scoop up rival RSC Holdings (RRR) in a $1.87 billion cash-and-stock deal that is aimed at combining forces and creating synergies.
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United Rentals agreed to pay $18 a share for RSC Holdings, marking a 58% premium over the company’s closing price of $11.37 on Thursday.
When $2.3 billion of RSC debt is included, the total enterprise value of the transaction rises to $4.2 billion.
“This transaction marks a transformative moment in our company’s history. Combining the experience and resources of two top performing equipment rental companies creates an exceptional company,” United Rentals CEO Michael Kneeland said in a statement. “With the best talent in the industry, we have a tremendous opportunity to become the supplier of choice for customers throughout North America.”
Based in Scottsdale, Ariz., RSC owns RSC Equipment Rental, which has 452 branch locations across 42 states and three provinces in Western Canada. It generates the bulk of its revenue from equipment rentals, but also sells used equipment and merchandise.
Oak Hill Capital Partners, which owns 33.5% of RSC’s shares, has already agreed to vote in favor of the transaction.
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The transaction is expected to close during the first half of next year and add to United Rentals’ bottom line in the first full year. The two companies said they are already working on an integration plan and are eyeing $200 million in potential annual cost savings, plus additional revenue and cash flow increases.
The companies said that Kneeland and URI Chairman Jenne Britell will remain in their positions leading the combined company, but three independent directors from RSC will receive board seats.
"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,” said RSC CEO Erik Olsson. “Our similar customer-centric cultures and commitment to operational excellence will provide even greater value to our customers and facilitate a smooth integration.”
The cash portion of the transaction will be financed through new debt and drawing down current loan facilities. United Rentals said it received financing commitments from Morgan Stanley (MS), Bank of America Merrill Lynch (BAC) and Wells Fargo (WFC).
United Rentals also said it plans to authorize a $200 million stock buyback program after the deal closes.
Shares of RSC rallied 57.78% to $17.91 ahead of the open, while United Rentals gained 4.88% to $27.31.