United Rentals Inc. on Tuesday said it agreed to buy Modesto-based U.S. Rentals Inc. for about $1.2 billion in stock and assumed debt in a deal that would create the biggest equipment rental company in the United States.
The combined company would rent backhoes, forklifts, hand tools, tables, chairs and other items at 296 sites in 33 states, Canada and Mexico. The company would have annual sales of about $1.4 billion, the two companies said in a statement, making it the biggest in the $20-billion-a-year industry.
United Rentals, based in Greenwich, Conn., was founded in September by former managers of United Waste Systems Inc., a waste management company acquired by USA Waste Services Inc. in August in a $2.5-billion deal.
U.S. Rentals has been in the equipment rental business since 1957 and is the second-largest equipment rental company in North America.
Wall Street welcomed the deal. United Rentals stock gained $2.38 to close at $35.75; U.S. Rentals shares surged $3.31 to $33.50. Both trade on the New York Stock Exchange.
Under the deal, each share of U.S. Rentals will be exchanged for 0.9625 share of United Rentals. Based on Monday's closing price for United Rental of $33.38, the deal would be worth about $988 million. At Tuesday's market price, the stock swap would be worth more than $1.1 billion.
In addition, United Rentals will take on $250 million of debt.
United Rentals Chairman Bradley Jacobs will become chairman of the combined company, and Bill Berry, president and chief executive of U.S. Rentals, will be president.
Jacobs, declaring "size definitely does matter" in the equipment rental industry, said the proposed acquisition will add to the earnings of the combined company.
"One of the big attractions of this transaction is that it will be highly accretive to the surviving company's earnings," he said in a telephone interview.
Separately, United Rentals said it completed the acquisitions of 10 smaller equipment rental companies with total 1997 sales of about $121 million.
Officials said they expected no antitrust problems for the United Rentals-U.S. Rentals deal, which is subject to approval by regulators.
The transaction has been unanimously approved by directors of both companies and is meant to be tax-free to shareholders, whose approval is needed for completion of the deal. The deal is expected to close before October.
The smaller companies acquired are Power Rental Co., based in Oregon; Grand Valley Equipment Co. of Michigan; Gaedke Equipment Co. of Texas; Reitzel Rental, Select Equipment and Sky King Equipment and Georgian Sales & Construction Rentals, all based in Ontario, Canada; Yankee Equipment Corp., based in Connecticut; Dealers Service Co. of New Jersey; and Madison Equipment Sales & Rentals Inc. in Alabama.