Al Root

A smaller fish just stole a meal from a shark.

Tuesday, the equipment rental company Herc bid $104.89 per share in cash and stock for H&E Equipment Services. That topped a recent bid of $92 a share from United Rentals.

That makes Herc the likely winner for the smaller equipment-rental company. United Rentals said Tuesday it would "no longer pursue the acquisition of H&E."

"One of our key responsibilities as a management team is to be good stewards of our investors' capital, and our decision not to increase our offer for H&E reflects our commitment to financial discipline," said CEO Matthew Flannery in a news release.

Herc is optimistic the deal will create value, predicting some $300 million in annual synergies from the combination. "We are pursuing the proposed combination with H&E from a position of strength and view it as a path to accelerate Herc's strategy and growth trajectory," said CEO Larry Silber in a news release. "This combination would strengthen Herc's position as a premier rental company in North America."

The move is a surprise. United is the much larger company, with a market value of about $48 billion, so it would be much easier for it to absorb an acquisition of this size. Herc's market value is about $5.7 billion, and the bid values H&E stock at about $3.8 billion

H&E stock was up 12% in premarket trading at $97.75 a share, while S&P 500 and Dow Jones Industrial Average futures were up about 0.3% and 0.1%, respectively.

Herc stock was down almost 13% at $175. United Rentals stock slipped 2.1% to $725.90.

Herc stock is down because the purchase is a big one for it. The company will also use shares in the transaction, and shares of acquirers tend to slip in stock-based takeovers.

United Rental shares are down because losing out means lower earnings. "Some sell-side analysts had already started to bake in an accretive impact from H&E, and we would expect downward earnings revisions," wrote Jefferies analyst Stephen Volkmann in a Tuesday report.

He rates United Rentals stock at Hold and has an $800 target for the price.

The Herc bid values H&E stock at almost eight times the estimated earnings before interest, taxes, depreciation, and amortization, or Ebitda, it is expected to bring in for 2025. Herc trades for about six times Ebitda.

The largest players, United Rentals and Ashtead, the owner of Sunbelt, trade for about 8.4 times and seven times estimated 2025 Ebitda, respectively.

Write to Al Root at allen.root@dowjones.com

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February 18, 2025 08:52 ET (13:52 GMT)

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