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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 “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 results 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 about $5.2bn.
Shares in H&E were up 15 per cent in New York, while Herc’s stock fell 15 per cent as investors digested the news before closing down 7.4 per cent.
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. United’s shares fell 2.8 per cent in Wall Street 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”.
