April 1, 2001
United-Neff Deal Falls Apart After several deadline extensions, United Rentals and Neff ended merger talks in late February, almost two months after United

United-Neff Deal Falls Apart

After several deadline extensions, United Rentals and Neff ended merger talks in late February, almost two months after United proposed to buy a majority stake in the Miami-based company.

“Neff management will now focus on increasing shareholder value, increasing the company's return on assets and strengthening the balance sheet,” Neff CEO Pete Gladis said.

“The company is concluding its search for strategic alternatives and will seek to improve shareholder value from its existing operations.”

Greenwich, Conn.-based United proposed on Jan. 2 to buy 72 percent of Neff for about $37 million in stock and the assumption of $277 million in debt. Shares of Neff dropped 52 percent to $1.15 the day the deal's collapse was announced. Two days later, the stock had fallen to 90 cents.

In response, Standard & Poor's revised its CreditWatch implications for the corporate credit and senior secured ratings on Neff to negative from developing. The ratings were placed on CreditWatch on March 16, 2000.

The CreditWatch implications on the subordinated debt remained negative. The revised CreditWatch implications related to Neff's constrained financial flexibility and heightened financial risk. Standard & Poor's was to meet with Neff management to review the company's recent year-end operating performance and to discuss its near-term operating outlook and the status of its bank facility.

Moody's Investors Service removed Neff's debt ratings from review for possible upgrade. Moody's downgraded Neff's ratings with a negative outlook, reflecting Neff's “weak performance through the nine months ended September 30 (during which EBITA failed to cover total interest expense); expectations for continued weakness in both Q4-00 and Q1-01; and likely covenant violations on the senior secured credit facilities.”

In another development, General Electric Capital, which owns 5.1 million Neff common shares and had supported United's proposal with a $90 million investment in United's preferred shares, said it might talk to Neff's management and other interested parties now that the merger talks have fallen apart.

Neff Posts $18.5 Million Loss for 2000

MIAMI — Neff, No. 7 on the RER 100, reported a net loss for the year ended Dec. 31 of $18.5 million, or 87 cents a share (including charges of $8.6 million, or 40 cents per share), just a week after the firm ended merger talks with United Rentals. In 1999, Neff posted pro forma net income of $600,000, or 3 cents a share. Pro forma figures assume the sale of subsidiaries Sullair Argentina and Neff Machinery in the fourth quarter of 1999 occurred Jan. 1, 1999.

“Without the distractions of the sale process the management team at Neff is focused, energized and excited about dealing with the challenges and opportunities that the rental industry will present in 2001.”
— Pete Gladis, Neff CEO

For the fourth quarter of 2000, the company reported a net loss of $9.7 million, or 46 cents a share. Earnings before interest, taxes, depreciation and amortization (EBITDA) dropped 17.9 percent to $17.8 million compared with pro forma EBITDA of $21.7 million for the same quarter a year ago and marked a 33.6 percent fall from historical EBITDA of $26.8 million for Q4 ’99. The company reported a charge for deal-related expenses in the fourth quarter of $4.3 million, or 20 cents a share.

Full-year revenue increased 4.6 percent to $260.1 million compared with 1999 pro forma revenue of $248.6 million but plummeted 33.7 percent from 1999 historical revenue of $392 million.

“Our results for the fourth quarter reflect unusually bad weather in certain areas of the country coupled with the effects of a slowing economy that has adversely affected demand for rental equipment from many of our customers,” president and CEO Pete Gladis said. “During 2001 we plan to continue to reduce capital expenditures for rental equipment and work to improve our cash flow from operations in order to pay down our outstanding debt.

“Without the distractions of the sale process, the management team at Neff is focused, energized and excited about dealing with the challenges and opportunities that the rental industry will present in 2001.”

United Tops $2 Billion in Rental Revenue

GREENWICH, Conn. — United Rentals surpassed $2 billion in rental revenue and came close to $3 billion in total revenue for 2000. United posted a rental industry-record $2.06 billion for the year, up from $1.58 billion in 1999, and $2.92 billion in total volume, up 30.7 percent from $2.23 billion in 1999. Net income was $176 million, a 15 percent increase from 1999.

For the fourth quarter, United grossed $535 million in equipment rentals, up from $469 million in Q4 ’99, with total volume of $751 million, a 12 percent boost from $669 million in Q4 ’99. Earnings per share for the year increased increased 14.5 percent to $1.89. Equipment utilization was 62.5 percent in the fourth quarter, and sharing of equipment among branches generated 11.8 percent of rental revenue.

“We achieved these results in the face of a slowdown at the end of the year caused primarily by unusually bad weather in several parts of the country, TEA-21 project delays and a weakening economy,” CEO Brad Jacobs said.

Business tracked slightly ahead of budget in the first two months of 2001, Jacobs added, but United still is allowing for the possibility that the economy will continue to be slow. “We are increasing our free cash flow from operations by reducing capital expenditures for new equipment and by actively taking steps to improve our overall cash structure. We anticipate that free cash flow from operations in 2001 will be approximately $390 million, or about $300 million more than previously expected.”

“We anticipate that free cash flow from operations in 2001 will be approximately $390 million, or about $300 million more than previously expected.”
— Brad Jacobs, United Rentals CEO

Jacobs was bullish about United's national accounts program, which signed 145 new national agreements during the fourth quarter, “bringing the total number of our large industrial and construction company partners to 1,250.” National accounts revenue for the year was about $250 million, Jacobs said.

Jacobs added that with the expectations of a softer economy in 2001, United will focus more on cost control. It plans to make about 15 percent to 20 percent of its equipment purchases from the used equipment market and plans to reduce equipment expenditures from $808 million in 2000 to about $350 million this year.

The company is reviewing 30 to 40 underperforming branches, which could be closed if they don't increase revenue. It is consolidating its credit and collection offices, trimming them from 30 locations to 21, and streamlining its advertising expenditures.

Despite not completing the acquisition of Neff, United is decreasing its acquisitions budget to less than $100 million, although Jacobs said it could spend more if favorable opportunities arise.

“The only thing that is different from the past with respect to our acquisition strategy is that, with our emphasis now on cash flow, we've raised the bar a little bit in focusing on whether an acquisition is credit-neutral or, even better, credit- enhancing,” Jacobs said. “A major factor is whether there is equity associated with the transaction, either in the form of issuing our equity or receiving new fresh equity from someone involved with the transaction. That is not to say we'll only do deals that have equity involved in them. Obviously, there we will be exceptions to that rule.”

No. 1 on the RER 100, United has 755 locations in 47 states, seven Canadian provinces and Mexico.

NES' Rental Revenue Jumps, Net Income Falls

EVANSTON, Ill. — National Equipment Services, No. 5 on the RER 100, reported a 47.8 percent drop in net income for 2000 despite a 37.7 percent increase in rental revenue. CEO Kevin Rodgers blamed the decline from $21.1 million in 1999 to $11 million on “a surplus of equipment in some markets and rising interest rates [that] led to pressure on margins for every company in the industry — including NES.”

Rental revenue for the company was $470.2 million, total revenue grew 32 percent to a record $623.8 million, and operating income increased 8.9 percent to $103.4 million. Earnings before interest, taxes, depreciation and amortization (EBITDA) grew 24.4 percent to $223.5 million.

Unlike in previous years, when much of NES' revenue growth came from acquisitions, it made only a few small acquisitions in 2000 and grew to a large degree through a 15 percent increase in same-store revenue.

Rodgers was optimistic about NES' prospects for 2001. “There is no indication of a shift in the solid fundamentals for our industry,” he said. “Strong demand in most of our markets indicates that equipment rental is taking share from equipment ownership, a process that could accelerate during tough economic times as companies put more of a focus on asset management.”

Rodgers said he expects softness in certain markets to continue in the first half of 2001 but predicted stronger performance in the second half, especially in the profitable traffic safety sector, which typically starts the year slowly because of winter weather.

Rodgers hopes to improve return on assets and reduce debt in 2001. At the end of 2000, NES had debt of $872.1 million, down $43.1 million from its peak of $915.2 million at the end of the third quarter.

NationsRent Denies Bankruptcy Rumors

ORLANDO, Fla. — NationsRent energetically denied rumors circulating on the show floor at the American Rental Association convention in February that the company was about to file for bankruptcy protection.

“We're alive and well and going about our business,” Jerry Weber, executive vice president of operations for the Fort Lauderdale, Fla.-based company, told RER. “We're focused on doing business. We have a rock-solid management team in place working hard to make this company a successful venture.”

In early February, Standard & Poor's placed its ratings on NationsRent on CreditWatch with negative implications, reflecting the company's constrained financial flexibility and heightened financial risk.

NationsRent's debt totaled approximately $1.02 billion as of Sept. 30.

The company was No. 4 on the RER 100 in 2000.

Ford Finalizes Hertz Acquisition

DEARBORN, Mich. — Ford Motor Co. announced that the merger of The Hertz Corp. with a Ford subsidiary became effective March 9. As a result, Hertz is now an indirect, wholly owned subsidiary of Ford.

Ford reached an agreement with Hertz in January to acquire the remaining 18.5 percent of Hertz Class A common stock it did not already own at a price of $35.50 per share. A tender offer for the shares expired March 2 and resulted in the purchase of about 19.3 million of the approximately 20 million publicly traded shares of Hertz Class A common stock.

Park Ridge, N.J.-based Hertz Equipment Rental Corp., No. 3 on the RER 100, is a division of The Hertz Corp.

Sunbelt Expansion Surges With New Branches

CHARLOTTE, N.C. — Sunbelt Rentals has opened five branches already this year as part of an ongoing national expansion, marketing director Chuck Miller told RER.

The company recently opened general tool and equipment branches in Glendale, Calif., Hillsboro and Gresham, Ore., and Tacoma, Wash., in addition to a specialty branch in Chicago called Chicago Pump and Power, focusing on the pump and power-generation market.

Sunbelt planned in March to open a general tool and equipment facility in Hilton Head Island, S.C., and two scaffolding rental specialty branches in Florida. It plans to open another general tool and equipment branch in Pembroke Pines, Fla., this month.

Sunbelt, No. 10 on the RER 100, grew dramatically last year with the acquisition of the U.S. locations of BET Plant Services, then the sixth-largest U.S. rental firm, and has added 17 locations since that deal was finalized. It now has 167 branches in 26 states and plans to open 30 startup locations during its next fiscal year, which begins May 1. Most of its new locations will be in the general tool and equipment arena, focusing primarily on Seattle; Portland, Ore.; northern California; Dallas-Fort Worth, San Antonio and Austin, Texas; St. Louis; Chicago; Cincinnati and Columbus, Ohio; and the Southeast and mid-Atlantic markets, Miller said.

ARA Floor Traffic Appears to Decline

ORLANDO, Fla. — Show-floor traffic at the American Rental Association convention in February appeared considerably slower than in recent years. Although some manufacturers were satisfied with the amount of business they conducted, many complained that floor traffic decreased significantly after the morning of the second day.

Despite the slower traffic — partially the result of a scheduling conflict with the World of Concrete, which opened in Las Vegas the day after the ARA show opened — the quantity of products and services offered was received positively. A record 850 exhibitors participated, including 149 new vendors.

The show started on an upbeat note. The ARA's new executive director, Christine Wehrman, meeting the industry press at her first ARA national convention, expressed optimism about the future of the rental industry.

“I see a wonderful, dynamic growth industry with unlimited potential and opportunity,” Wehrman said. “I see it within the association and within the industry as well.”

British Firm to Increase Rental Focus

BOLTON, England — Allen Plc, the parent company of Speedy Hire Plc, one of the United Kingdom's largest equipment rental chains, plans to sell its utility services and construction units to concentrate on the rental business. Allen officials said the plans are based on major losses by the company's building contracting unit, which might post a loss of as much as $19 million for the fiscal year ending in April because of the “poor performance” of certain large contracts.

Allen sold its home-building and sheet-piling units in June to focus on equipment rental, utility services and construction. It now plans to specialize even further. Allen will rename the company Speedy Hire Plc as the equipment rental division becomes the major focus. The company expects the Speedy Hire division to have an operating profit of about $24.5 million this fiscal year. In the fiscal year ended in April 2000, Speedy Hire contributed 63 percent of Allen's total profit on 23.7 percent of its total revenue, according to Allen's annual report.

Speedy Hire has about 180 branches in the United Kingdom and operates a calling system in which customers can reserve a rental anywhere in the country by calling a centralized reservation number. Speedy Hire is the second-largest tool rental specialist in the United Kingdom.

National Service Centers Opens First Facility

MAPLE GROVE, Minn. — National Service Centers, a construction equipment repair and maintenance company founded by rental industry veteran Garth Landefeld, opened its first facility in Maple Grove.

Landefeld's goal is to service all brands of light and general construction/contractor equipment, aerial work platforms and rough-terrain forklifts. “We'll service backhoes, trenchers and air compressors down to concrete and hand-held saws, demolition hammers and tools,” he said. “We'll do preventive maintenance service on a 30-day, 60-day, quarterly, semiannual or annual basis, annual machine inspections, oil analysis, machine refurbishing. We're affiliating with a number of manufacturers to be an authorized service center. Many manufacturers receive trade-ins that they lack the facilities to service, and we can take on that work.”

Landefeld, a former district manager for Rental Service Corp., regional service manager for JLG Industries and service manager for Prime Equipment, said his company will work with companies of all sizes. “We'll take care of the small rental company that doesn't have the facilities to service and take care of larger equipment, as well as equipment distributors and end-users. And we can service equipment for the large rental chains as well, whose shops may not be able to handle all the service work they need to do. We're not looking to compete with anybody or rent or sell equipment. But we can support the service needs of all these companies.”

NSC will trouble-shoot by telephone, provide emergency field service on a 24/7 basis, perform inspections and evaluations, and do equipment rebuilding and reconditioning.

“For many rental companies, the biggest hurdle is having enough mechanics with the technical background and training to work on so many kinds of machines or perform annual inspections,” Landefeld said. “Even well-equipped shops often need to outsource repairs they don't want to do. Sometimes they are too busy to take care of end-user machines or competitive-brand machines. We can help them support their own customers.”

NSC's first location is a 10,000-square-foot facility. Landefeld hopes to expand NSC on a national level with a number of regionally based locations.