NEW YORK: US machinery rental firm Herc Holdings is poised to acquire smaller rival H&E Equipment Services for US$3.83bil excluding debt, after outbidding leader United Rentals, according to company statements.
The cash and stock deal would combine the world’s third and the fifth-largest firms that rent machinery for construction sites.
United Rentals, which last month entered an agreement to buy H&E, dropped the deal.
Equipment rental is in growing demand as contractors find it more cost-effective to outsource anything from pumps to air conditioning to their construction sites rather than owning them.
The largely fragmented rental machinery industry has been under consolidation for more than a decade.
Shares of H&E rose 14% following the US$104.59 per share offer from Herc –US$78.75 in cash and 0.1287 shares of Herc common stock – a premium of nearly 20% on the stock’s last close last Friday.
The transaction was valued at US$5.3bil, including about US$1.5bil in debt, compared to United Rentals’ US$4.8bil bid.
The industry leader had offered US$92 a share, or US$3.37bil in equity value, based on a Reuters calculation.
Herc successfully gatecrashed the deal during H&E’s 35-day “go-shop” period following United Rentals’ bid.
The uncommon outcome finds the target company choosing a smaller and more advantageous suitor for its business acquisition.
“We view the takeover deal announcement as bold and a surprise,” said John Healy, an analyst with Northcoast Research firm.
Healy added that the bid was a bit on the rich side but will lead to significant cost cuts and potential growth.
Louisiana-based H&E said on Tuesday it had notified United Rentals that it intends to cancel their merger agreement, to enter one with Herc instead.
United Rentals answered it does not intend to submit a revised proposal and is dropping the plan.
Herc and H&E have more complementary portfolios by fleet-mix, including earth-moving and general rental equipment, according to Barclays’ machinery & construction analyst Adam Seiden.
“Herc’s ‘over-the-top’ purchase of H&E is the alternative that made sense all along,” Seiden said in a note.
“Scale doesn’t come cheap, but it’s the growth that investors favour.”
Herc has agreed to pay the termination fees of US$63.52mil that H&E owes United Rentals for ending their merger agreement.
The acquisition is not expected to face regulatory impediments, according to a person familiar with the matter.
Founded in 1961, H&E provides a rental fleet that included aerial work platforms, earth-moving equipment, material handling equipment and other general and specialty lines of equipment.
“With H&E’s acquisition no longer an option, we wouldn’t be surprised if United Rentals pursues other opportunities this year,” JPMorgan analyst Tami Zakaria said in a note. — Reuters
