New York law firm Abbey Spanier Rodd & Abrams LLP is seeking to recover damages on behalf of people who purchased or acquired United Rentals securities between 29 August and 14 November.
Abbey Spanier has commenced a class action lawsuit against United Rentals in the US District Court for the District of Connecticut on behalf of "all persons who acquired securities of United Rentals Inc" during the period.
On 14 November, United Rentals publicly announced that private equity company Cerberus Capital Management LLP had informed the company it was not prepared to proceed with the merger agreement between the two.
The complaint alleges United Rentals violated federal securities law by not disclosing that Cerberus had contacted the company several weeks after the merger agreement was signed.
United Rentals announced it had entered into a definitive merger agreement with the affiliates of Cerberus on 23 July. Cerberus would acquire all outstanding shares of United Rentals common stock for USD34.50 per share.
On 19 October, United Rentals announced its stockholders had approved the merger agreement.
According to the complaint, several weeks after signing the merger agreement, Cerberus had expressed its concern about its ability to proceed with the merger due to changes in the credit and financial markets. On 14 November, United Rentals filed a Form 8-K that included correspondence from Cerberus dated 31 August and 6 September, demonstrating the merger had been at risk since 29 August.
United Rentals' shares plunged 31% - from USD34.01 per share to a closing price of USD23.50 - after news broke out that Cerberus was backing out of the merger.
The lawsuit claims United Rentals' failure to disclose information misled investors and caused the market for its shares to trade at prices artificially inflated by the belief the merger would proceed.
Separately, Cerberus has told the New York Supreme Court that United Rentals' lawsuit over its stalled USD4 billion acquisition contradicts the terms of their deal, CNNMoney.com reported (Forkliftaction.com News #337
The private equity company argued that it is only liable for USD100 million in damages if it terminates the deal, valued at USD6.6 billion including the assumption of debt.
"United Rentals' position flies in the face of the provisions of the merger agreement and the limited guarantee," Cerberus said in a news release. "The plain text of the documents is directly contrary to United Rentals' position."
According to the CNNMoney.com report, the dispute had been brewing privately for months. Cerberus executive Steven Mayer wrote to United Rentals general counsel Roger Schwed on 31 August seeking a discussion on the terms. The request was prompted by "concerns about recent unanticipated developments in the credit and financial markets".
United Rentals replied that financial market turmoil was specifically excluded as an escape clause in the merger agreement.
Cerberus has filed a request for a declaratory judgment in New York State Supreme Court.