SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A Information
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Exchange Act of 1934
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RENTAL SERVICE CORPORATION
(Name of Registrant as Specified in Its Charter)
UNITED RENTALS, INC.
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
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[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
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(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
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(The script contained herein reflects certain typographical corrections to
the script of Mr. Jacobs filed earlier today.)
Remarks of Bradley S. Jacobs, Chairman and Chief Executive Officer of
United Rentals, Inc. ("United Rentals"), relating to United Rentals' tender
offer for shares of Rental Service Corporation's common stock (including
the associated preferred stock purchase rights), made during United
Rentals' quarterly investor conference call held on April 27, 1999.
Presentation of Bradley S. Jacobs - Tender Segment
1. Thanks, John. In short, On April 5th we made a $22.75 all cash
offer for the outstanding shares of Rental Service.
2. Let me give you five highlights, then we'll go through the issues
one by one.
i) We received our HSR clearance last week, and we anticipate
beginning to solicit consents to remove the Rental Service board
soon.
ii) Based on the information we have, we see no basis to
raise our offer, even by a penny, at this time.
iii) We believe Rental Service's stock price has traded up over our
offer price because of misconceptions based on certain information
that's been put out there.
iv) The transaction would not be anywhere near 30 cents accretive
to us, as Rental Service would like stockholders to believe.
v) We're making good progress in our litigation, particularly in
Delaware, and we are baffled why the Rental Service board doesn't
do the obvious right thing, which is to get in a room and meet with
us.
Now let me discuss these issues one by one:
3. We believe that the Rental Service share price has traded higher
than our offer price, because Rental Service has put out
information, which we believe has confused the marketplace. For
example, they said that they had great record first quarter
results, but when you look closely, you can see that they beat
expectations by significantly accelerating the sale of used
equipment. In fact, used equipment sales as a percent of total
revenues increased by 73% over the average level experienced over
the last 10 quarters, and 37% more than the previous highest level
of used equipment sales ever recorded in their company's history.
When you normalize their used equipment sales, they actually would
have missed meeting consensus estimates for the quarter by a penny
or two.
4. But the problem doesn't stop with just Rental Service's so-called
record performance in the first quarter - they would like you to
believe that a $22.75 cash transaction would be 30 cents accretive
to United Rentals' earnings. Well, you know, from their lips to
God's ears, but the fact of the matter is, in order to even
approach that level of accretion, you would have to accept
financial projections for Rental Service which show margins
significantly higher than they've ever achieved and even
substantially higher than they've recently given guidance for. We
see no reason to base our offer on an overly optimistic 38.9% 1999
EBITDA margin assumption, when their own management on their
conference call guided analysts to a range of 36-38%. This
difference alone could account for over $20 million in annual
EBITDA.
5. Furthermore, if you take into account additional equity that we
would be necessary to keep our debt to total cap ratio within our
targeted level of 55% or lower, the acquisition would be even less
accretive for us.
6. Now let me update you on the status of our lawsuit in Delaware.
Among other things, this lawsuit seeks to invalidate the $40
million of break-up fees and the cross-options contained in the
Rental Service/NationsRent merger agreement, and we believe we have
very favorable facts here. We asked for and won our motion for
expedited discovery, the depositions have been taking place and
will continue, and we look forward to the May 17 preliminary
injunction hearing date in Delaware. While obviously you never know
what can happen in court, we think its basic common sense that the
so-called "merger of equals" between Rental Service and NationsRent
should be determined actually to be a sale of the company.
7. It's incomprehensible to us how you could call it a "merger of
equals" when NationsRent would end up with majority control of the
board, would have more than 5 times the insider stock ownership
post-deal than the Rental Service insiders, and it would have the
NationsRent CEO becoming the CEO of the combined company.
8. In a change of control situation, the Rental Service board has
explicit so-called "Revlon" duties to entertain alternative offers
for the sale of the company. Rental Service has denied its
stockholders the right to benefit from our proposal when they told
us in January that they quote were not for sale unquote just six
days before the announcement of their NationsRent agreement.
9. We believe that the $40 million break up fee that Rental Service
agreed to pay to NationsRent is clearly exorbitant. The break up
fee represents 7% of Rental Service's equity value prior to the
announcement of the proposed merger, and 11% of NationsRent's
equity value prior to the announcement. To our knowledge, Delaware
courts have not upheld a break up fee that high, and have stated
that break up fees should be in the range of 3-5% of the target
company's equity value. Even a 5% breakup fee is rare.
10. We intend to aggressively pursue our Consent Solicitation to remove
Rental Service's current board of directors, because we really do
believe they have not upheld their fiduciary duties to their
stockholders in agreeing to give up control of the company to
NationsRent, and in fact, actually paying a 26% premium to
NationsRent based on the trading price of NationsRent shares prior
to the signing of their merger agreement. AND THIS IS IN ADDITION
TO PUTTING IN ALL THESE IMPEDIMENTS THAT PREVENT RENTAL SERVICE
STOCKHOLDERS FROM ENTERTAINING COMPETING OFFERS.
11. The Rental Service board has created this predicament which the
company now finds itself in, and more importantly it is not taking
the proper steps in our view to resolve the problem.
12. Over the last couple of weeks, we've had phone discussions with
many of Rental Service's stockholders. And while we don't expect at
this very early stage to necessarily get a majority of the shares
tendered to us this week, we nevertheless would like to encourage
all the Rental Service stockholders to please tender their shares
to United Rentals. This will send a strong message to the Rental
Service board that the right thing for them to do is not to
continue to paint themselves into a corner and pretend that we
don't exist, or hope we don't exist, but to sit down, and meet with
us.
13. And, despite their protestations to the contrary, it would be very
simple for them to share information with us. All they have to do
is reach a determination that our proposal is superior, not
necessarily acceptable, but superior, to the proposed stock merger
with NationsRent. We believe this should be a no-brainer
determination, especially in light of the fact that their merger
agreement with NationsRent allows them to talk to us without giving
NationsRent the right to terminate their merger.
14. So in short, the Rental Service opportunity is one that we're going
to pursue it diligently and professionally pursue. On a very
disciplined basis. If it works out, great. If it doesn't work out,
we've got plenty of other opportunities to continue to deliver the
growth we and our other fellow shareholders expect from United
Rentals.
Summary Remarks of Bradley S. Jacobs (after Q&A)
1. Thank you OPERATOR, AND THANK YOU very much EVERYONE, for
participating in this call. We appreciate for your interest in
United Rentals and your support for our efforts to create long-term
shareholder value for all of our fellow shareholders.
2. By way of summary, we've made excellent progress in ALL THREE CORE
aspects of the company, which is reflected in our strong first
quarter results:
- running the business well EACH AND EVERY DAY AND Wayland and
his team have done an excellent job at integrating and
optimizing the businesses.
- completing sensible and accretive acquisitions AND John and
his team have done an excellent job at being careful with
what we buy and how much we pay.
- and mike and his financial group have certainly been very
active and successful in raising the capital necessary to
invest in our future growth.
3. With respect to Rental Service, I think we still have a fair amount
of wood to chop in terms of getting all the facts out there, and
making sure people understand that this TRANSACTION only works for
us at a sensible valuation -- using good numbers and good
information.
4. And the final point I'd like to leave everybody with, is that
regardless of what happens or doesn't happen with Rental Service,
the bottom line is we don't need to do that transaction in order to
deliver the growth our shareholders expect of us in the future. If
we can complete THIS transaction on terms that are fair and
accretive, we'll do it. If we can't, THE $4-500 million of acquired
revenue of private companies or divisions of other public companies
that John and his team are working on day-in and day-out, will
provide quite a lot of external growth TO COMPLEMENT the robust
internal growth we expect going forward.
5. So again, thank you very much everybody for your interest and we
look forward to seeing you when we are on the road soon. And for
those OF YOU who we won't have the pleasure of seeing in person, we
look forward to talking with you on our next quarterly conference
call, and of course, we're always available on the phone here in
Greenwich.
Certain Information Concerning Participants
United Rentals, Inc. ("United Rentals"), UR Acquisition Corporation
("UR Acquisition") and the following persons named below may be deemed to
be "participants" in the solicitation of consents and/or proxies from
stockholders of Rental Service Corporation ("Rental Service"): the
directors of United Rentals (Bradley Jacobs (Chairman of the Board and
Chief Executive Officer), Wayland Hicks (Vice Chairman and Chief Operating
Officer), John Milne (Vice Chairman, Chief Acquisition Officer and
Secretary), William Berry (President), John McKinney (Vice President,
Finance), Leon Black, Richard Colburn, Ronald DeFeo, Michael Gross, Richard
Heckmann, Gerald Tsai, Jr. and Christian Weyer); the following executive
officers and employees of United Rentals: Michael Nolan (Chief Financial
Officer) and Robert Miner (Vice President, Strategic Planning); and the
nominees of United Rentals (the "Nominees") to stand for election to the
Board of Directors of Rental Service (Messrs. Richard Daniel, Raymond
Troubh, William Aaron, David Bronner, Peter Gold, David Katz, Elliot Levine
and Jeffrey Parker and Ms. Stephanie Joseph).
As of the date hereof, United Rentals is the beneficial owner of
100 shares of common stock, par value $0.01 per share (the "Common Stock"),
of Rental Service. Other than set forth herein, as of the date hereof,
neither United Rentals, UR Acquisition nor any of the persons listed above,
has any interest, direct or indirect, by security holding or otherwise, in
Rental Service.
United Rentals has retained Goldman, Sachs & Co. ("Goldman Sachs")
to act as its financial advisor and the Dealer Managers in connection with
the tender offer (the "Offer") by United Rentals and UR Acquisition to
purchase the shares of Common Stock of Rental Service for $22.75 per share
in cash, for which Goldman Sachs may receive substantial fees, as well as
reimbursement of reasonable out-of-pocket expenses. In addition, United
Rentals has agreed to indemnify Goldman Sachs and certain related persons
against certain liabilities, including certain liabilities under the
federal securities laws, arising out of its engagement. United Rentals has
also entered into a commitment letter with Goldman Sachs Credit Partners
L.P. ("GSCP") relating to the financing of the Offer pursuant to which GSCP
may receive substantial fees, as well as reimbursement of reasonable
out-of-pocket expenses. Goldman Sachs does not admit that it or any of its
partners, directors, officers, employees, affiliates or controlling
persons, if any, is a "participant" as defined in Schedule 14A promulgated
under the Securities Exchange Act of 1934, as amended, in the solicitation
of consents and/or proxies, or that Schedule 14A requires the disclosure of
certain information concerning Goldman Sachs. In connection with Goldman
Sachs' role as financial advisor to United Rentals, the following
investment banking employees of Goldman Sachs may communicate in person, by
telephone or otherwise with a limited number of institutions, brokers or
other persons who are stockholders of Rental Service and may solicit
consents and/or proxies from these institutions, brokers or other persons:
Bruce Evans, Robert Lipman, Jeffrey Moslow and Cody Smith. Goldman Sachs
engages in a full range of investment banking, securities trading,
market-making and brokerage services for institutional and individual
clients. In the normal course of its business Goldman Sachs may trade
securities of Rental Service for its own account and the accounts of its
customers, and accordingly, may at any time hold a long or short position
in such securities. Goldman Sachs has informed United Rentals that, as of
the date hereof, Goldman Sachs holds no shares of the Common Stock of
Rental Service for its own account. Goldman Sachs and certain of its
affiliates may have voting and dispositive power with respect to certain
shares of Rental Service Common Stock held in asset management, brokerage
and other accounts. Goldman Sachs and such affiliates disclaim beneficial
ownership of such shares of Rental Service Common Stock.
