United Rentals climbs following acqusition agreement with Neff

Shares of United Rentals (URI) are in moving higher after the company announced plans to acquire Neff Corporation (NEFF), topping H&E Equipment Services' (HEES) $1.2B offer. UNITED TO ACQUIRE NEFF: United Rentals and Neff said in a statement that United will buy Neff for $25 per share in cash, or about $1.3B. The transaction is expected to be immediately accretive to cash earnings per share and free cash flow, the companies said. The boards of directors of United Rentals and Neff unanimously approved the agreement and private investment funds managed by Wayzata Investment Partners, which hold approximately 62.7% of the outstanding common shares of Neff, have executed a written consent to approve the transaction. The transaction is expected to close in the fourth quarter, they said. United said it expects to realize approximately $220M in net present value of tax benefits included in the purchase price. Neff CEO Graham Hood commented that "United Rentals is an industry leader in equipment rentals, and as a result of this transaction, our employees and customers will benefit from the combined company's expanded geographic footprint and diversified offering." FAILED H&E OFFER: Immediately prior to entering into the agreement with United Rentals, Neff terminated its previously announced merger agreement with H&E Equipment Services. Neff said on Monday it had received a "superior offer," beating H&E's $21.07 per share cash offer, which represented a total enterprise value of $1.2B, including debt. H&E said on Tuesday that it decided not to submit a revised proposal to acquire the company. In connection with the of the Neff-H&E termination, United Rentals said it has paid H&E a termination fee of approximately $13.2M on behalf of Neff. ANALYST COMMENTARY: RBC analyst Seth Weber said in a note to clients this morning that United's deal to buy Neff the deal bolsters United's "market-leading position" as Neff is a profitable operator with a strong presence in a high-return equipment area. He added that while LTM valuation is higher than recent industry transactions, pro forma net leverage will be manageable due to a favorable view on the cycle and United Rental's significant free cash. Weber has an Outperform rating and a $144 price target on the stock. On Wednesday, following the announcement H&E would not raise its offer, Weber said he does not believe the decision was a call on the cycle, but a move by management to retain its valuation framework. Weber said H&E has indicated it will instead focus on a strategy of green-field expansions and opportunistic roll-up acquisitions, which will clearly take longer than the purchase of Neff. The analyst has an Outperform rating and $32 price target on the stock. PRICE ACTION: In morning trading, United Rentals rose 1.1% to $113.54, Neff rose 1% to $24.80 and H&E was up 0.7% to $21.43.