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H&E Equipment Services has accepted a bid from Herc Rentals of nearly $5.3bn, rebuffing an earlier takeover offer from equipment rental rival United Rentals.
Herc’s cash-and-stock bid values H&E at nearly $500mn more than United’s all-cash offer, which the takeover target’s board approved last month. As part of the original United deal, H&E was given a 35-day so-called “go-shop” period in which it could solicit interest from rival bidders, allowing Herc the opportunity to swoop.
The proposal from Herc values H&E’s shares at almost $105 each — with 75 per cent paid in cash and the remainder in Herc stock. H&E’s board concluded in recent days that Herc’s offer — which values the group at almost $5.3bn, including $1.4bn of net debt — was superior to United’s original bid, which valued the company at $92 a share.
Herc confirmed the takeover in a statement on Tuesday morning after the Financial Times first reported the proposal earlier in the day. United had until February 21 to submit a counter-offer, but informed H&E that it did not intend to sweeten its bid and would instead take a $63.5mn termination fee from H&E, according to statements from Herc and H&E.
Gatecrashing its larger rival’s deal represents a coup for Herc as it races to compete with United, the world’s largest industrial and construction equipment supplier. The takeover of H&E adds a network of 160 branches across 30 states, with a rental fleet comprising 64,000 pieces of machinery and a workforce of 2,900 employees.
Combining with H&E bolsters Herc’s status as United’s leading competitor and result in significant cost and revenue synergies, the two companies said. United, which generated $13bn in revenues last year, has spearheaded a wave of consolidation across the industrial equipment rental sector in recent years. Together, Herc and H&E generated revenues of around $5.2bn.
Shares in H&E were up 11.5 per cent in pre-market trading in New York, while Herc’s stock fell about 13 per cent as investors digested the news.
Herc, which was spun out of Hertz in 2016, will also grant H&E two board seats as part of the proposal, according to people familiar with the matter. Herc’s takeover will be financed by $4.5bn of debt financing led by French bank Crédit Agricole. United did not immediately respond to a request for comment.
Shares in United jumped almost 6 per cent on the day the deal was announced in January as investors welcomed the takeover. United’s offer valued H&E at a 100 per cent premium to closing price. After Herc’s rival deal was announced, United’s shares fell 2.3 per cent in pre-market trading on Tuesday.
Shares in H&E had traded at least $4 below United’s offer price in the weeks following its initial approach, in part because of the perceived antitrust risk of the dominant player in the sector trying to take over a smaller rival.
Responding to a question last week about the increased competition faced if United and H&E were to combine, Herc’s chief executive Lawrence Silber declined to comment on a rival deal but said “consolidation is a good thing”. He added that consolidation “typically results in a more stable industry, which is an important part of our long-term strategy”.
