United Rentals failed to force Cerberus to close its $7B buyout; it got $100M

In July 2007, at the peak of the leveraged-buyout boom, equipment-rental giant United Rentals agreed to be taken private by RAM Holdings and RAM Acquisition, acquisition vehicles of Cerberus Capital Management, for $34.50 per share in cash — a transaction value of about $7 billion including debt. In November, as credit markets seized up, RAM told United Rentals it did not intend to close. United Rentals' shares fell more than 30% to $23.50 in a day, the NYSE's largest decliner, and a RAM executive simultaneously floated a reduced price through UBS.

United Rentals sued in Delaware and asked the Court of Chancery to specifically enforce the merger agreement — to make Cerberus buy the company at $34.50 anyway. It looked promising: Section 9.10 of the agreement said equitable relief, including specific performance, was available. But Section 8.2(e) opened with 'Notwithstanding anything to the contrary in this Agreement, including with respect to Sections 7.4 and 9.10' and limited the seller's remedies to terminating and collecting the $100 million reverse termination fee.

After a two-day trial, Chancellor William B. Chandler III ruled on December 21, 2007 that the two remedies provisions directly conflicted, making the contract ambiguous — and that the negotiating history and the 'forthright negotiator principle' showed the buyer had understood from the start that money, not performance, was the remedy. RAM's own CEO testified the $100 million break fee was the cap. Specific performance was denied.

United Rentals gave up the fight, formally terminated the agreement and directed Cerberus to wire the $100 million Parent Termination Fee, which Cerberus had guaranteed up to that cap. The seller had spent the crisis year fighting for a $7 billion closing and recovered about 1.4% of it.

The $34.50/share (~$7B) deal died. URI stock fell over 30% to $23.50 when Cerberus walked, then 17% more to $17.91 after the ruling. Recovery: $100M.

United Rentals' lawyers let two remedies provisions contradict each other: one promised specific performance, the other made the seller's sole right a $100 million fee.

The seller accepted a limited guarantee from Cerberus capped at exactly $100 million — signaling, in ink, that its exposure under the deal was that number.

The forthright negotiator principle then cut against United Rentals: the buyer understood the contract to bar forced closing, and the evidence showed the seller knew or should have known.

The board fought on anyway, burning management attention through late 2007, when the best available outcome was the fee Cerberus had always been prepared to pay.

Remedies clauses need the same care as price. If one section grants specific performance and another makes a termination fee the exclusive remedy, a Delaware court will read the mess against you.

United Rentals formally terminated the merger agreement on December 24, 2007 and directed payment of the $100,000,000 Parent Termination Fee by wire; Cerberus said it stood ready to honor its $100 million guarantee. The company remained public and told investors it would maximize value as a standalone business. The ruling became a standard citation for why merger-agreement remedy provisions must say one thing only, and for the risk sellers take when a private-equity buyer's real commitment is measured by its break fee.