United Rentals has lost its bid to force the $4 billion takeover by Cerberus Capital Management, after a judge ruled the agreement allowed the buyer to pull its offer.
Delaware Chancery Court Judge William B. Chandler III ruled on Friday that United executives should have known that Cerberus believed they had a right to pull out of the deal at any time as long as they paid a $100 million fee.
United argued that Cerberus's RAM Holdings unit was attempting to use the turmoil in U.S. credit markets as a pretext to extract a lower price for the buyout.
Chandler said that the agreement's language on the fee was confusing and evidence of the negotiation process was muddled. "One may plausibly upbraid Cerberus for walking away from this deal, for favoring their lenders over targets or for suboptimal contract editing,''
"But one cannot reasonably criticise the firm for a failure to represent its understanding'' of the termination language,” he added
The judge concluded that the contract was "ambiguous on account of its conflicting provisions and involved a deeply flawed negotiation process."
He said that based on testimony, United Rentals could not overcome "the apparent lack of communication of its intentions and understandings" to the buyers.
Cerberus has declined to say whether it plans to dispute the potential $100 million termination fee.