Jason Kelly

Nov. 14 (Bloomberg) — Cerberus Capital Management LP is seeking to cut the price on its $4 billion agreement to buy United Rentals Inc., the largest U.S. construction-equipment rental company, people familiar with the transaction said.

Cerberus, based in New York, would pay a $100 million termination fee if United Rentals doesn’t renegotiate, said the people, who declined to be identified because the discussions are private.

The United Rentals deal marks the second time in less than a month that Cerberus has sought to get out of a leveraged buyout as investors balk at buying an estimated $300 billion in debt committed to LBOs. The firm, founded by former Drexel Burnham Lambert Inc. trader Stephen Feinberg, withdrew its offer in October to buy Affiliated Computer Services Inc.

“This deal was expected to close sometime this week,” wrote Stephen Volkmann, an analyst with J.P. Morgan Securities Inc. in New York. “The banks were struggling with selling the associated debt offering.”

United Rentals, based in Greenwich, Connecticut, fell $8.71, or 26 percent, to $25.30 at 1:11 p.m. in New York Stock Exchange composite trading. Cerberus offered $34.50 a share in July. Reuters reported earlier that Cerberus may end the deal.

Cerberus spokesman Peter Duda declined to comment. Chuck Wessendorf, vice president of investor relations for United Rentals, didn’t respond to a message seeking comment.

Extended Tender Offer

United Rentals said today it extended the tender offer for some of its outstanding debt.

United Rentals’ 6.5 percent notes due in 2012 dropped 5.5 cents to 98 cents on the dollar, pushing the yield up 2.17 percentage points to 7.05 percent, according to Trace, the NASD’s bond-pricing service. The extra yield investors demand to own the debt rather than Treasuries widened 2.5 percentage points to 3.35 percentage points.

Cerberus may have decided it offered too much for the company, wrote Volkmann, who rates United Rentals stock “underweight.” Since the purchase announcement, United’s peer group has traded down “significantly,” Volkmann wrote. Some of Cerberus’s assumptions may have been “aggressive,” including cumulative rental gains of 5.5 percent by 2009.

If the deal were to fall apart, United Rental shares would be worth a price in the low $20s, Volkmann wrote.

“At this point, there is a possibility that Cerberus will renegotiate the deal, though it is difficult to speculate what that price would be,” wrote Volkmann.

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