M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

Wednesday, November 21, 2007

Cerberus Strikes Back

Here is the press release. Classic litigation tactic to file the day before a holiday and ruin the other side's break.  Not very nice, though -- this dispute is getting uglier.  I'll have commentary before market open on Friday.  Enjoy your holiday and give thanks you are not a lawyer representing United Rentals on this deal -- they're working the rest of this week. 

New York, New York – November 21, 2007 – Earlier today Cerberus Capital Management, L.P. and Cerberus Partners L.P. (collectively, “Cerberus”) filed an action for a declaratory judgment against United Rentals, Inc. (NYSE:URI) (“United Rentals”) in New York State Supreme Court. In taking this action, Cerberus seeks to ensure that United Rentals honors the express contractual undertakings it made contemporaneous with the execution of the Merger Agreement announced July 22, 2007.

Contrary to United Rentals’ current position in litigation and in the press, while negotiating the Merger Agreement, Cerberus and its affiliates, RAM Holdings, Inc. and RAM Acquisition Corp.(“the RAM entities”), with respect to any and all claims arising under or related to the Merger Agreement, negotiated for and received a liability cap of $100 million. Due to the uncertainty in the financial markets, Cerberus and its affiliates required, and United Rentals expressly agreed, that United Rentals’ sole and exclusive remedy against Cerberus and its affiliates was damages in an amount not to exceed $100 million.

This bedrock principle of the transaction is reflected in all of the critical agreements and documents, and in particular, in the Merger Agreement and in Cerberus’ Limited Guarantee of the obligations of the RAM Entities. Thus, in the Limited Guarantee that Cerberus provided to United Rentals as part of the transaction, United Rentals agreed, after substantial negotiation that the liability of Cerberus and its affiliates for any claims arising under or related to the Merger Agreement would be capped at $100 million and that United Rentals had no rights to seek equitable relief.

Regrettably, United Rentals is now engaged in an effort to rewrite history and the contracts into which it entered, claiming that it has the right to compel the RAM Entities and Cerberus to go forward with the merger transaction. United Rentals’ position flies in the face of the provisions of the Merger Agreement and the Limited Guarantee. The plain text of the documents is directly contrary to United Rentals’ position.

Under the Limited Guarantee and Equity Commitment Letter, United Rentals has no right to and therefore may not require Cerberus or its affiliates to fund or finance any transactions contemplated by the Merger Agreement or to bring any claim against Cerberus or its affiliates relating to or arising out of the Merger Agreement other than a claim for non-payment of the Guaranteed Obligations subject to a cap of $100 million.

In taking this action, Cerberus seeks merely to ensure that United Rentals honors the express contractual undertakings contemporaneous with the execution of the Merger Agreement of July 22, 2007.


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