Filed under: Deals, Law, Private equity
Shareholders at United Rentals (NYSE: URI) have a right to be mad. Hedge fund Cerberus Capital Management offered to purchase the company. Shares rose from about $27 to over $34.
Then Cerberus walked. United Rental stock fell to $20.76 and has not recovered much. The entire matter headed to court. The legal battle was to begin this day in Delaware Chancery Court. That has been delayed while the two sides speak.
Cerberus stated that it was within its right to break off the contract. According to The Wall Street Journal, “the delay could help United’s flagging stock price, as well as clear up some of the negative public perception of Cerberus, a Wall Street buyout shop that provided little detail for why it walked away from its agreement.”
In other words, it may have been in the financial interests of Cerberus to walk out, but its may be a shaky legal ground.
Private equity firms have broken a number of these buyouts now, and, in some cases, contracts granted them to do so. The court system is apt to catch up to them at some point soon. If settlement speaks with United don’t work out, it might be in this case.
Just one announcement that an LBO shop has had to pay hundreds of millions in damages would send a real shudder through the industry.
Douglas A. McIntyre is an editor at 247wallst.com.
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