United Rentals

Situation

With an excess of $2 billion in revenue, United Rentals is the largest commercial and construction equipment rental company in the world. In 2008, United Rentals was considering acquiring $680 million of convertible preferred stock from Apollo and J.P. Morgan Partners for cash and new debt. In addition to valuation considerations, the preferred stock provided the holders with certain rights, which inhibited United Rental’s ability to perform recapitalization transactions and allowed the preferred stockholders to influence sales process decisions at a potential cost to common shareholders. The preferred stock also had equity conversion features and contingent rights to be considered in the valuation of the preferred stock.

Engagement

Because of Gordian Group’s experience providing complex analysis and valuations, we were retained by the Board of Directors to render an opinion with respect to the fairness to the common stockholders of the consideration being paid to purchase the preferred stock. Gordian’s work revolved around valuing the preferred stock through multiple methods including application of option pricing theory. Our analysis also considered the impact of increased leverage due to the transaction.

Outcome

Through these analyses, Gordian Group was able to demonstrate that the purchase price was fair and United Rentals completed the purchase of the preferred stock resulting in the recapitalization of the Company.