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Forum Newbie
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Last Login: Wednesday, August 01, 2007 7:19 PM
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On July 23rd United Rentals announced it agreed to a buy out by Cerebrus Capital for $34.5 per share. Its been over a week since then, and the shares have only traded down. They currently sit at $32.14. There has been some downgrades by JPM analysts and Standard and Poors since then, but I don't really understand why would matter if they're not going to be public anymore. Is there something I'm missing here ?
Glad to see a SinLetter Forum btw!
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Forum Member
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Last Login: Thursday, October 23, 2008 11:28 PM
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The fact that the investment banks who were supposed to the sell the Chrysler debt for Cerberus were having a tough time offloading that debt and a general consensus that the private equity "bubble" is near is a peak may have something to do with it.
If you get a chance, check out the recent MarketWatch article titled Barbarians face to face about the Blackstone Group (BX).
As you can see from this post, "Cerberus will finance more than half the United deal using high-yield debt and asset backed securities".
--If the doors of perception were cleansed everything would appear to man as it is, infinite. — William Blake.
Yes, I am blogging @ http://www.sinletter.com/ablog.aspx
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Forum Newbie
Group: Forum Members
Last Login: Wednesday, August 01, 2007 7:19 PM
Posts: 2,
Visits: 7
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Thanks for the super fast response and I appreciate the time you took to connect the dots there. What i can see is that the Chrysler deal involved a sale of $12 Billion in debt, whereas the total financing for the United deal apparently involves over half of 6.6 Billion. So assuming the high yield debt and all other terms remain the same in both cases, the financing involved in the United deal would be half of (if not less) than the Chrysler deal.
The other thing is, the fundamentals of the companies itself: Chrysler is (or was) a struggling wing of Daimler's operations. UR on the other hand is profitable, actually they reported 11% EPS growth yoy today. Third, I notice the Chrysler deal was announced on May 14th, over 2 months before the UR deal. That was ample time for the Cerberus management to realize any growing pressure from the financing market. So my gut feeling says that they must have been pretty confident (at least in terms of financial backing) to have still gone ahead and bid on UR.
Also, I just came across a piece reported here here that says this about the deal:
Completion of the transaction is subject to customary closing conditions, including approval by United Rentals stockholders and regulatory review, but is not subject to a financing condition. The acquiring Cerberus affiliate has obtained debt and equity financing commitments for the transactions contemplated by the merger agreement, the aggregate proceeds of which will be sufficient for it to pay the aggregate merger consideration, related fees and expenses and any required refinancing or repayments of existing company indebtedness.
Frankly I don't know how reliable that source is, but if true it seems like financing the purchase shouldn't be a concern.
But in any case, i guess like a lot of other stories these days this one has more to do with investor anxiety than anything else.
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