Rewrites for context, adds analyst comment in paragraph 7

By Sabrina Valle and Shivani Tanna

Feb 18 (Reuters) - U.S. machinery rental firm Herc Holdings HRI.N is poised to acquire smaller rival H&E Equipment Services HEES.O for $3.83 billion after outbidding leader United Rentals URI.N, according to company statements on Tuesday.

The cash and stock deal would combine the world's third and the fifth largest rental firms that rent machinery for construction sites. United Rentals, which last month entered an agreement to buy H&E, dropped the deal.

Equipment rental is in growing demand as contractors find it more cost-effective to outsource anything from pumps to air conditioning to their construction sites rather than owning them. The largely fragmented rental machinery industry has been under consolidation for more than a decade.

Shares of H&E rose 14% following the $104.59 per share offer from Herc - $78.75 in cash and 0.1287 shares of Herc common stock - a premium of nearly 20% on the stock's last close on Friday.

That compares to United Rentals' bid of $92 a share, or $3.37 billion in equity value, based on a Reuters calculation.

Herc successfully gatecrashed the deal during H&E's 35-day "go-shop" period following United Rentals' bid. The uncommon outcome finds the targeted company, H&E, choosing a smaller and more advantageous suitor for its business acquisition.

"We view the deal announcement as bold and a surprise," said John Healy, an analyst with Northcoast Research firm, adding the bid was a bit on the rich side but will lead to significant cost cuts and potential growth.

Louisiana-based H&E said on Tuesday it had notified United Rentals that it intends to cancel its merger agreement, to enter one with Herc instead.

United Rentals answered it does not intend to submit a revised proposal and is dropping the merger plans.

Herc and H&E have more complementary portfolios by fleet-mix, including earthmoving and general rental equipment, according to Barclays' machinery & construction analyst Adam Seiden.

"Herc’s 'over-the-top' purchase of H&E is the alternative that made sense all along," Seiden said in a note. "Scale doesn’t come cheap, but it’s the growth that investors favor."

Herc has agreed to pay the termination fees of $63.52 million that H&E owes United Rentals for ending the merger agreement. The deal is not expected to face regulatory impediments, according to a person familiar with the matter.

Founded in 1961, H&E provides general rental fleet, including aerial work platforms, earthmoving equipment, material handling equipment and other general and specialty lines of equipment.

(Reporting by Sabrina Valle in New York, Shivani Tanna and Aishwarya Jain in Bengaluru; Editing by Mrigank Dhaniwala, Krishna Chandra Eluri, Shinjini Ganguli, Alexandra Hudson)

((ShivaniJayesh.Tanna@thomsonreuters.com;))