United Rentals, Inc., Greenwich, Conn., filed a lawsuit today against RAM Holdings, Inc. and RAM Acquisition Corp. acquisition vehicles, formed by Stephen Feinberg's Cerberus Capital Management, LP to acquire United Rentals. The lawsuit seeks to force Cerberus to complete the agreed-upon transaction.
As previously announced, United Rentals received a letter from RAM, repudiating the merger agreement even though there has been no material adverse change in United Rentals' business. The letter was sent after a meeting led by Feinberg at which RAM informed United Rentals' advisers that RAM did not want to force its financing sources to fulfill their commitments, even though the merger agreement requires them to do so. At the meeting, Cerberus specifically confirmed that there has not been a material adverse change.
United Rentals has stated that the repudiation, which is unwarranted and incompatible with the covenants of the merger agreement, is nothing more than a naked ploy to extract a lower price at the expense of United Rentals' shareholders.
The lawsuit asserts that the "Specific Performance" provision of the merger agreement, which states that "irreparable damage would occur in the event that any of the provisions of th[e] Agreement were not performed in accordance with their specific terms or were otherwise breached," explicitly gives United Rentals the right to compel consummation of the merger in the present situation.
The lawsuit contends that the Cerberus acquisition vehicles are directly violating the merger agreement and acting in bad faith, and do not have the right to pay a reverse break-up fee and simply walk away. There is no financing barrier to completing the merger, as RAM has binding commitment letters from its financing sources to provide financing for the transaction. United Rentals believes that the financing sources stand ready to fulfill their contractual obligations. As described in the lawsuit, the Specific Performance provision of the merger agreement requires RAM to draw down the committed financing and consummate the merger under precisely these circumstances.
The lawsuit also contends that the Cerberus acquisition vehicles sought to further their scheme to buy United Rentals for less by taking advantage of the dramatic stock price drop that occurred after their intention to walk away from their obligation to consummate the merger was leaked to a news organization.
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