M&A announcement

Dec 16, 2011

Good morning, and welcome to United Rentals' conference call discussing the proposed acquisition of RSC Holdings. Before we begin, note that the company's press release, comments by presenters, and responses to your questions contain forward-looking statements. The company's business and operations are subject to a variety of risks and uncertainties, many of which are beyond its control, and consequently, actual results may differ materially from those projected. A summary of these uncertainties is included in the safe harbor statement contained in the release. For a more complete description of these and other possible risks, please refer to the company's annual report on Form 10-K for the year ended December 31, 2010, as well as subsequent filings with the SEC. You can access these filings on the company's website at www.unitedrentals.com. Please note that United Rentals has no obligation and makes no commitment to update or publicly release any revisions to forward-looking statements in order to reflect new information or subsequent events, circumstances, or changes in expectations. You should also note that today's call will include references to free cash flow, adjusted EPS, EBITDA, and adjusted EBITDA, each of which is a non-GAAP term. I will now turn the call over to Fred Bratman of United Rentals. Mr. Bratman, you may now begin. Good morning, and thank you, and welcome to our call. Thank you for joining us on such short notice. As the operator said, I'm Fred Bratman, Senior Vice President of IR and Corporate Communications for United Rentals. Speaking today are Michael Kneeland, CEO of United Rentals, Bill Plummer, our CFO, as well as Erik Olsson, CEO of RSC Holdings. We have a full agenda today. There is an investor deck on our website, both websites, RSC and URI, which we'll be going through. After we go through the deck, we will open up the call for Q&A. At this time, I'd like to turn the call over to Michael Kneeland. Michael? Thanks, Fred. For all of you on the call today, we're talking from slide number 5. It's kind of a unique approach that we're taking this morning. Today's an exciting day for United Rentals and RSC. We have a lot to cover on this call, and we'll try to keep our comments as brief as possible, to leave ample time for questions. As you all know, this morning, we announced our intent to acquire RSC for $18 a share. This is a transformational deal that will allow United Rentals to benefit significantly from the growth prospects and operational efficiencies of a much larger business and a best-in-class operation. Before we get to some of the finer details of this transaction, I want to address the question of why now? There are three compelling answers to that question. First, our end markets have entered a recovery, and with a strong growth projected over the next 5 years. Second, there's a trend toward rental penetration in the marketplace as a whole. Third, both companies are currently well-positioned to take advantage of these dynamics. We're also expecting substantial cost savings from the combination of our operations, and we expect the transaction will be accretive to cash earnings per share in the first full year after closing, and that significant cost synergies will be attainable within this timeframe. Most importantly, both companies are completely committed to customer service. We both have a strong customer-facing infrastructure in place, and this deal will bring together a wealth of best practices and industry talent. It's very important. Given the collective integration experience and structure of both operations, we are also confident, very confident of our ability to manage a successful integration and deliver on expectations. With that, I'm going to ask Erik Olsson to add his comments. Over to you, Erik. Thank you, Michael, and I'd like to echo your excitement about this transaction. RSC brings a diversified customer base with significant strength in the industrial markets, which, combined with United Rentals' expanded product mix and scale, provides an exceptional platform for growth. As I'll share later in the call, our performance at RSC continues to be very strong, and we're very proud of what we have built to date. Ultimately, partnering with United Rentals elevates both organizations into a significantly stronger strategic and financial position that is far greater than either company could have achieved on a standalone basis. The synergies are significant, and we're excited about the future. I look forward to assisting in the transition and integration. Now, I'll let Bill walk you through some of the top-line transaction highlights. Thanks, Erik, and good morning, everyone. In terms of the key transaction terms, as Michael said, the transaction is at $18 per share. That puts the enterprise value at $4.2 billion, which includes the assumption of about $2.3 billion of net debt. The merger consideration will be exactly 60% cash, 40% stock. That breaks down into $1.80 in cash and 0.2783 United Rentals shares per share of RSC. We'll finance the cash portion through the issuance of new debt and through drawing on our existing ABL facilities. Excuse me. The net effect will be that about 70% of the outstanding shares post-transaction will be owned by United Rentals shareholders and the remaining 30% by RSC shareholders post-closing. In addition to the transaction, our board has announced that we intend to authorize a share buyback in the amount of roughly $200 million post-closing of the transaction. Our intention is to complete this share buyback in the 6-12 month range following the closing of the transaction. The financial benefits we will touch on in a little bit more detail, but at a high level, we expect over $200 million of annual cost-only saves, and roughly two-thirds of that fully developed run rate we expect to achieve in the first 12 months after closing. As a result, as Michael said, we expect this transaction to be significantly cash accretive. Cash EPS defined as excluding the one-time costs and amortization of intangibles. In the first full year, significantly cash accretive. The leverage will be well contained post-transaction. If you give effect to the synergies in the first year, we expect that the pro forma 2011 year-end leverage would be in the 4.5x area, debt to adjusted EBITDA. On the governance front, United Rentals Chairman, CEO, and CFO will remain in place, and the RSC CEO will help lead in the transition. We also expect to add three of RSC's independent directors to the existing United Rentals board. We do need shareholder votes from both companies, and there will be the other customary closing conditions in a transaction like this, which we expect to get through over the course of the next several months, leading to a close of the transaction in the second quarter of 2012. With that, I will turn it back to Michael for other comments about the transaction. Well, thanks, Bill. For all of you on the phone, again, let's go to slide seven. Let's take a look at the profile of the company that the acquisition creates. We think very highly of RSC, and we see a true strategic and financial fit between our two companies. We are already the largest rental company in North America, but this transaction will take us to the next level, significantly enhancing our ability to serve the needs of our customers. First and foremost, it elevates our footprint and creates a more balanced and versatile fleet mix, and this creates a greater exposure to industrial customers and national accounts. Our combined LTM revenue through September 30th is $3.9 billion, and our combined fleet is $7 billion based on original equipment value. The new United Rentals will be well-positioned to be the supplier of choice in an industry that is still highly fragmented and competitive. We have strong positions in all regions in the U.S. and Canada with greater industrial rental capabilities and a wealth of best practices in IT and the best talent in the industry. In short, we will raise the bar in every area that is important to our customers, and with a more balanced revenue mix that we are able to manage the business for less volatility in future cycles. Looking at slide 8 now. Every deal we have completed since I became CEO has met three strategic criteria, and this one is no different. First, it dovetails with our customer segmentation strategy, which is to build strong relationships with the most attractive customer groups, particularly large accounts. Second, our corporate cultures are closely aligned. Third, it would generate a positive return on invested capital by the second full year. Moving on to slide 9. Now is turning to our strategic and financial rationale. There are five core factors that I want to discuss in detail. Going to slide 10, as I mentioned earlier, at any point in the cycle will be a growth phase or during a downturn. The combined company will be in a fundamentally stronger position with a more balanced revenue mix, with a wider range of equipment offerings, and deeper cost efficiencies. Now is the time to do this deal. Both companies are in a strong financial shape, having gone through significant restructurings and cost rationalization programs over the past few years. Most forecasting services project that our construction end markets are entering a modest recovery. In long term, the new United Rentals will be poised to benefit from the ongoing recovery in construction over the next five years, as well as the continuing trend towards rental penetration. We are already experiencing the leading edge of that demand. Going to slide 11. Combining our current industrial offering with RSC's strength in industrial accounts will help us increase our penetration in this growing rental sector. It will diversify our overall end market exposure, reducing the impact of construction cycles. For the combined company, we expect to have a more balanced customer mix, with industrial accounts representing 35% of rental revenues, up from 20%, where we are now, and exceeding our previous target of 30% industrial. Slide 12, talking about the ability to serve large customers. You know, as a result of this increased scale, we will be able to accelerate our current customer segmentation strategy for larger key accounts and national accounts. These accounts typically rent for longer periods of time at lower transactional costs. They tend to pay on time, cause less damage to the equipment. Geographic reach is a key factor in our segmentation strategy, and the new United Rentals will be able to benefit from an expanded presence both nationally and regionally. Going to slide 13. One of the things we find very attractive about RSC is that our cultures and strategies are extremely similar. This is an important point for us because it ensures that our customers will continue to receive the highest standards of service. Our customer targets and business segments are also the same, so there will not be a material change in our go-to-market operations on the ground. In addition, we both recently improved both of our cost structures, and that discipline will continue with the combined organization. Going to slide 14. From a practical standpoint, the similarities in our cultures and operations will ease the integration process. Both companies are already working on an integration plan that sets the stage for a successful transition, and there are four underlying principles to the plan, which are extremely important. Number one, the view of the integration is going to be through the customer's eyes to create a smooth transition. Two is to utilize the best people, processes, and systems from both organizations. Three is follow the money when pursuing cost and revenue synergies. Four, to ensure that communication with our internal and external stakeholders is transparent. As you know, we have a solid track record of optimizing our branch operations while retaining revenues and maintaining customer relationships. We also have approximately 250 acquisitions under our belt. We feel confident that the integration process will run smoothly with minimal disruption to our customer-facing operations. In fact, we've already mapped out the most important tasks the first 100 days, and we know the marks we need to hit. Our estimate at this time is that the branch consolidations will be in the range of 5%-10% of the combined footprint. Going to slide 15. Finally, we have the cost savings and the revenue synergies we've anticipated for the combined company. This transaction is expected to create significant efficiencies in cost savings on top of what's already a position of strength. We've proven that we have the discipline and experience to transform the business at every level, and we've equally clear vision for the integration process, which I will personally lead with Erik's support. I'll ask Bill to walk you through the financial details. Over to you, Bill. Thanks, Michael. As we said, we expect to achieve $200 million of annual run rate cost-only synergies. I think the key point here that I would want to emphasize is that we're very confident about the synergy number. We've taken a couple of different approaches at arriving at this number, and we're very comfortable and confident in our ability to achieve that number. It represents about 5% of the pro forma combined revenue on a trailing 12 basis. It's a number that we think can develop very quickly. In particular, we've said that we expect to be about two-thirds of the way there on a run rate basis over the first 12 months. The components of the synergies are pretty straightforward. You would expect corporate overhead savings, regional field overhead savings, along with branch consolidations. But a significant chunk of the synergies will come from operating synergies in our direct costs. So put those all together, and they add up to the 200, and I take great comfort from the fact that both companies individually have come up with a number that's very similar. In addition to the synergies that we're talking about here, there are other opportunities that we haven't baked into the analysis, which will represent real upside. For example, revenue synergy opportunities. We think through a more efficient leveraging of our combined footprint along with the combined customer bases, there's upside in revenue synergies. And there may be other upsides in the cost synergies that we're not anticipating as well. All in all, we're very comfortable and confident in our ability to achieve the synergies, and I think that's a real key point to emphasize. Moving to slide 16. In terms of the capital structure and accretion dilution, this is a good transaction from that perspective. For accretion, we expect this transaction to be cash flow accretive in the first full year after closing to cash EPS. And when you look out at the second year, we expect that to be a double-digit accretive number by year 2. The balance sheet that will be left with the company will be a strong balance sheet on a pro forma basis. We expect to have adequate liquidity in the area of $600 million to $700 million at the time of closing, and it will grow from there. The overall leverage, as I mentioned earlier, will be very well managed in the area of 4.5 times when you include the first-year synergies, and certainly within the range that we feel comfortable with. More importantly, we expect that leverage to trend down rapidly as we realize the full synergies. Financing is well in hand. We have about $2.2 billion of financing that we'll execute to finance the transaction. We'll be working with some of our key banks in order to provide that financing. So we have commitments from Morgan Stanley, Bank of America, and Wells Fargo, and we expect to move forward in putting permanent financing in place upon closing. RSC's ABL and their senior secured notes that are due in 2017 will be repaid in the transaction, and then we'll be assuming the other unsecured notes as a go-forward company. So those are the key points that we would highlight about the transaction specifically. We wanted to finish with just an update on where the company's performance stands as of right now for the fourth quarter. For United Rentals, as we look at the fourth quarter to date, we're still delivering very strong time utilization. Our quarter to date time utilization, through November, is 73.0%. We're also continuing to deliver very good rate progression. At quarter to date, our year-over-year rate performance through November is 6.5%, and we've been able to achieve sequential rate improvement in the fourth quarter as well. October was a down month for us in terms of sequential rate. But that was primarily, actually, exclusively due to currency, down 0.2%. November has been up about 1% sequentially, and so we're about 0.8% sequential improvement. So put that together with the time utilization, and our revenue growth is robust in the fourth quarter. Quarter to date, we're about 17.5% rental revenue growth, and obviously, looking to drive improvement going forward. On the cost front, United Rentals has been focused on branch consolidation, as you know, and will continue that in the fourth quarter. We expect to consolidate about 20 branches, all in the fourth quarter, as a standalone company. Maybe I will ask Erik to offer some thoughts on fourth quarter for RSC. Thanks, Bill. Yeah, we are having an outstanding fourth quarter to date here. The strengths of our third quarter continued into Q4 here with utilization at 75% in October, 71% in November. These trends, combined with our current year investment in fleet, generated year-over-year rental revenue growth of 27% quarter to date. This includes a record-breaking 31.5% year-over-year rental revenue growth in November. I am excited about our performance quarter to date, but I am exceptionally proud of the acceleration of our pricing performance in Q4. In the first two months of the quarter, we have increased sequential pricing 3.2% over the third quarter, resulting now in a 5.8% year-over-year improvement in rates quarter to date. We look forward to closing out a very strong 2011, and we also expect that these trends will continue in 2012. Great. Thanks, Erik. I want to just now go to the summary on page 19. Now that you have heard all of the details, you can see why we are genuinely excited about the prospects for this combined business. We are entering this transaction from a position of strength, creating financial value for our stockholders, and delivering strategic value to our business. We have chosen an exceptional company to partner with in the creation of new United Rentals, and timing, by all accounts, is ideal. With that, I am just going to stop, and I think it is now appropriate that we can open the call for questions. Operator, please instruct that. The floor is now open for questions. At this time, if you have a question or comment, please press *1 on your touchtone phone. If at any point your question is answered, you may remove yourself from the queue by pressing the # key. Again, we do ask that while you pose your question, that you pick up your handset to provide optimal sound quality. In the interest of time, and to answer as many questions as possible, we ask that you limit your questions to one follow-up. Following the call, a webcast replay will be available for 90 days. Thank you. Our first question is coming from Manish Somaiya with Citigroup. Good morning, everyone, and congratulations to both URI and RSC for a tremendous transaction. Thanks, Manish. Good morning. Good morning. Just a couple of questions that I've been getting this morning. I just don't want to be too focused on the nitty-gritty, but I guess maybe this is a question for Bill. In the press release, Bill, there's a statement about that the transaction is dependent on delivery of tax opinions. Is that normal? Because I generally don't come across sort of tax-specific opinions. Maybe if you can just kind of outline your thoughts there. Am I missing something there? No, there's nothing unique or mysterious about it, Manish. We want to make sure that we have a good handle on the tax treatment of the transaction. We don't expect there to be any undue complication. But certainly, we want to evaluate and make sure that we've got the tax situation well in hand. I don't think there's anything unusual that you need to be concerned about as an investor. We're just covering all bases. Got you. Then I am not sure, Bill, if you mentioned anything on the ratings. But maybe if you can talk about the implications on ratings with the transaction. Certainly. We went to the agencies' advisory services to talk through this transaction. We fully expect that we will be able to maintain our current rating with the close of this transaction. We do anticipate executing that share buyback that we talked about, and even giving effect for that buyback, we expect to be able to maintain the rating of the pro forma company. Got you. So basically, the RSC ratings would be upped a notch then because I think they are below your ratings at this point. That's right. Okay. I guess from a strategic perspective, Michael, obviously, both you and RSC have competed very heavily. You guys go against each other on a national basis. Can you talk about what brought you guys together? I guess at the corporate level and down to the field level, how do you turn competitors into friends and, I guess, one big happy family after competing for so long? Yeah. You're right. It's been a healthy competition. To be perfectly clear, we've been focusing on growing our key accounts and national account program. United Rentals has been very good in large projects, large national accounts. RSC is a premier company when it comes to industrial. Yeah, we've been fierce competitors, but ultimately, down to the branch level, they focus on the customer. It's about how they treat that customer, and those are the things that would disrupt the organization. This is going to be an integration process that's clearly going to be mapped out by both parties. It's an acquisition, but for a lot of reasons, it's going to be treated like a merger because there's a lot of good things that both companies do. My goal is to make sure that we get the best of both worlds. Myself, with Erik's help, we're going to see this through. Very confident on the synergies, but more importantly, we do believe that we can build upon this for the future. This is not just about synergies. This is about creating long-term value for our shareholders over time, and I do believe that this transaction speaks to that. Erik, I don't know if you want to add anything. No, I completely agree. I think we have similar cultures, especially focusing on and around the customer, and putting the two companies together create a very large company with lots of opportunities for our combined employees to grow in, and we can find new career paths, et cetera. So I'm confident that this integration will go smoothly and quickly as well. Yeah. The other thing I would only point out to you, Manish, is United Rentals is a company that's been made up of over 250 acquisitions. We started out this way. I came from an acquisition. A lot of my management staff came from acquisitions from different companies. We clearly understand this is a people business, particularly in the service. And that's going to be something that is one of our key operating principles. Thank you, Michael and Erik, for that. Just lastly, for Bill, I think in the press release, Bill, you mentioned that the RSC ABL will go away along with the secured notes, the 10% notes. Can you talk about the 8.25% notes? Because they do have a change of control, and the 9.5% notes are currently callable. So maybe if you can just kind of outline quick thoughts there, and I'll get back in queue. Our expectation is that all of the unsecureds will remain outstanding. The structure that we're using to execute the transaction, we believe, will allow us to leave all those notes outstanding. So it's just going to be the ABL and the secured notes that we'll be taking out. I don't know if you've got a more specific question. Once again, ladies and gentlemen, we ask that you please limit your questions to one plus one follow-up. Your next question comes from the line of David Raso with International Strategy and Investment Group. Hi, David. Hi. Good morning. If I missed it, my apologies. But the combined entity, when you ran through the numbers internally and thought about what the transaction and the combined company could look like, when you think of the EBITDA margin targets for the company going forward, how should we think about the old URI target and now as a combined entity? David, it's Bill. I think as a first-order approximation, you should probably think about a weighted average of the two. We are not changing our view for the legacy URI margin targets and improvement. I'll let Erik speak for the RSC side, but I can't imagine they're thinking about any changes as well. Of course, you'll have to adjust all of that for the synergies that we expect to realize. I think as a first approximation, weighted average, include the synergies, and go from there. Yeah. I agree, Bill. As you've seen in our third quarter here and from there, we hit our 40% EBITDA margins, and we're looking to get back into or approach peak margins here as we've moved through 2012 and 2013. I agree with what Bill says, that this should be margin expanding for the combined company. I agree. That's the goal, David. When we think of some consolidation of the branches, how should we be thinking about the one plus one might equal a little less than two in the sense of are you going to be able to maintain the full business? Obviously some sensitivity pre a merger, but have you had a chance to talk at all with the customer base about the idea of scale and so forth when it comes to the national accounts? Is there any loss of business here from the consolidation of branches or just any conversation maybe you've had with national accounts? I'm just trying to get a feel for the one plus one. Is it two, or do we trim a little off the top? Yeah, David, we haven't reached out to national accounts at this point, because obviously we just announced this morning. But as we went through, we did some assumptions on areas where we do think that there may be some question marks around our customer base, but it wasn't material. We also saw opportunities for actually revenue synergies to increase our revenue, particularly in two areas. One is with Total Control, and the other would be with our Trench Safety, Power & HVAC business that we can bolt on with the expertise that RSC brings. With our customers, we think that it's about service. Some of them may be upset, the fact that it's a larger organization, but it really comes down to the services you provide, and that if those services, my sense would be to improve them, and to retain them. Now, having said all that, where we have merged locations and consolidated locations, we have a strong record of maintaining the revenues. Some of the revenues of the walk-in type business goes away, but the strong, profitable business, we clearly hold on to. Erik or Bill, you'd like to add anything? No, I think you covered it very well. I wouldn't expect to see any large revenue losses as part of this process. I would agree. Your next question comes from the line of David Manthey with Robert W. Baird. Hi, good morning. First off, with the 4.5x leverage comfort level, does that include the $200 million share repurchase, or is that prior to that? Second, and related to it, what was the rationale of announcing the intention to repurchase the stock? The 4.5 roughly does include the effect of the buyback. It also includes the first-year synergies. The logic for the buyback is we executed the transaction at 60/40. We wanted to get back to the net impact of around 70%/30% transaction. That was how we were thinking about the impact from a debt and equity perspective. We did it at 60/40, and the buyback is just targeted at getting us back there. Okay. Thank you. Second, I am not sure if you can talk about the timeline of discussions and who approached whom, and if there were discussions with anyone else. Any details you can give us at this time? Well, this is Mike. It is safe to say that we have had a long-standing relationship with RSC, going back to the late 1990s. It was just safe to say that our discussion started in late October, and we progressed rapidly. Your next question comes from the line of Scott Schneeberger with Oppenheimer. Morning, Scott. Hey, good morning. Thanks. I'm going to ask three upfront, and hopefully you guys will take a follow-up if one required. First one, I don't assume any antitrust issues, but could you remind us market share, just as you see the industry? Number two question is Oak Hill's terms. Are they getting the same deal everyone else is? Do we know what they're going to do after? Any color there would be much appreciated. Number three, what's the long-term plan for Erik Olsson? Thanks. Let me address the market position. As you know, we have publicly stated that we're in the 8%-9% range, probably closer to the 8. RSC historically has been in the 4%, 4.5% range. So you can do the math and see where we stand. As you pointed out, we will follow and file with the regulatory processes that we have to do. We don't see any hurdles or any challenges that would alarm us. So we're very confident that we can overcome the requirements there. With regards to Oak Hill, I don't think it's appropriate for us to even comment. Well, obviously they get the same deal as everybody else. There's no difference there. For myself, I'm going to be participating here during a transition phase in the integration process. Yeah. Look, I want to be perfectly clear that Erik is going to be working very closely with me during the transition to make sure that it's very successful. Just following up on that, were there talks with any other companies? Was this unique? You two have been going at this for a while. Just any consideration for others, and I assume you're done for now. I can only tell you that we've been talking to RSC. I outlined that we started in late October, Scott, and very happy that it came to a successful conclusion. Yeah. RSC was not for sale. We were not shopping the company, and United Rentals approached us. As Mike said, it's last go-around in late October, and it went very fast thereafter. Your next question comes from the line of Philip Volpicelli with Deutsche Bank. Morning, and congratulations. Thank you. My questions are with regard to the capital that will be needed to be raised. If I do the back of the envelope, $400 million from RSC's revolver, $400 million from the 10% secured notes. The equity portion of the $10.80 is about $1.1 billion, and then $200 million for the share repurchase, that gets you about $2.1 billion. Is that accurate as to what you're looking to raise? 2.2. Okay. How will you do that, Bill? Will it be drawing the revolver in some sort of new term loan? Are you looking to issue bonds? Have you any discussion there? The 2.2 will be raised in new high-yield issues, a mix of secured and unsecured. I should point out that in addition to the 2.2, we'll have a small draw on the ABL for a little bit more than $100 million. So all in 2.3, of which 2.2 will be market issuance. Great. Thank you for the clarity. Then on the 10% notes, are you going to take them out at T plus 50, or are you going to try to negotiate something there? We're still working the exact details, but we will take them out per the indenture. Okay, great. Thank you very much. Your next question comes from the line of Emily Shanks with Barclays Capital. Hi, Emily. Good morning, guys. Congratulations. Thank you. Thank you for the details around the CapEx structure. I actually have a couple of just follow-up from Philip's. Specifically, for the RSC 8 and a quarters, can you clarify if your view right now is that that does trigger a change of control? Our view is it does not, and we expect to maintain those outstanding. Okay. My second question is, are you comfortable with the RP basket in the existing URNA indentures on a go-forward basis? We're very comfortable. As we looked at the entire capital structure go forward, we spent a lot of time working through the issues with both companies' issues. We don't foresee any challenges in terms of meeting the indenture requirements. Okay. My final question is just around those secure notes, the 2017. I know you said you're working through the issues right now. Can I just ask, are you trying to contemplate utilizing the equity claw aspect? Sorry, equity clawback was your- Yes question? Are you- No. Okay. No. Great. Thank you. Your next question comes from the line of Seth Weber with RBC Capital. Hey, Seth. Good morning, guys. Hi. A couple of questions. I guess, Mike, you have been in this business a while. Is the 5% synergy target, how does that compare to past transactions that you have done? Well, each transaction is a little bit different. This one here is obviously a lot larger in scale. You are talking about a lot of redundancy in certain areas, and Bill Plummer can walk you through specifics. I am very confident on the numbers that we put out there. We are going to deliver on those numbers and then some. As we pointed out, those are the cost synergies. We do see a significant revenue synergies. As we go through the process, we will communicate on an ongoing basis like we always have to the community of what we are doing and what we are seeing out there. But I am very confident. Yeah, no, that was my point, is it seems conservative. In instances where you have identified stores that you can consolidate, do the company's systems work together? Would you be able to share equipment between sites? Can you maybe just explain how that would work? Are you going to rebrand everything under one brand? Well, a lot of those questions are premature for us to answer right away. As you know, RSC does a lot of things very well, particularly like Total Control. We do both have the same operating system with RentalMan. However, we have both migrated and modified that. We would do a gap analysis to see what are the best attributes between both systems and see how we can map both of those to integrate into one operating system. That would be number one. With regards to being able to move fleet, we both do that very well. We both have a platform of fleet managers. I think that that will go forward, and I see it as an opportunity for improvement on fleet management. RSC does a very good job on fleet management, and again, I want to point out that this is about learning from both sides. I think that's something that will be a benefactor going forward. Okay. Yeah, I agree with Michael here. I think the denser footprint and the much expanded market coverage will allow for even an improved fleet management, fleet sharing, and possibly improvement from already very high fleet utilization levels. Okay. If I could squeeze one more in. The transaction's not going to close till probably second quarter, and Michael and Bill, you've talked about kind of front-end loading your CapEx for next year. Do you continue to go forward with that plan where that $500 million to $600 million is going to be front-end loaded to the first half, or does that now kind of take a pause and you wait and see to make sure the transaction goes through? How should we be thinking about your CapEx for the first half of next year? For United Rentals side, you should think about it the same way. We fully expect that we'll have a robust start to the year, given the momentum that we're seeing coming out of 2011. We're continuing to plan on front-loading our CapEx for the 2012 period. Your next question comes from the line of Henry Kern with UBS. Hey, good morning, guys. Morning. Aside from the EBITDA margins, how do other operating metrics change as a result of the combined entity? Henry, without going into too much detail, we've done a high-level look at a variety of metrics. Measures like average OEC per store, average OEC per driver, average OEC per mechanic, and we made estimates of how we're going to drive those. I think it's fair to say that in most cases, we assume that we'd be moving toward the better metric of either company, but not fully there to reflect the difference in our business. But we've got a number of measures like that we've baked into our assumptions about the synergies and the operating results of the company going forward, that we feel very confident about our ability to achieve. And with the combined entity, you have got better information than either of the companies ever had before alone. Do you think that there is a chance that a combined entity is able to achieve better pricing than either of the two ever could have, just because you have got better information on what industry pricing is from now two of the leading players? I would say, pricing will be what it will be. That is not what we are focused on here. $200 million of cost-only synergies is a huge prize, and we are going to be focused very intently on realizing that. And the market will set pricing. Your next question comes from the line of Peter Chang with Credit Suisse. Hi, good morning, guys, and congratulations. Thank you. I just had a quick question on how do RSC's rental rates at the absolute levels match up against URI's currently? Is there a big difference between the two? I'm sorry, ask that question again. In terms of absolute rental rates on a daily, monthly, or for your national strategic accounts, is there a material difference between the RSC's absolute rental rates that they're charging across their business compared to URI's? Hard to say. We haven't gotten into that level of detail. Obviously, we're still independent companies, and so we haven't compared pricing on a customer-level basis. So I guess I'll say more to come on that as we close the transaction. Okay, great. That's all I had. Thank you. I appreciate it. Yep. Your next question comes through the line of Joe Box with KeyBanc. Hi, Joe. Hey, good morning, guys. I've got a quick follow-up on Philip's question. We've seen a few deals come out recently that have been at higher than expected debt rates. Can you maybe just talk a little bit about what your expectations are for rates in the high yield market? That's a very speculative question, right? The deal will close several months forward. We'll deal with market levels at that point in time. I think the important thing that I would point out now is that we've done sensitivities around the funding cost, and the deal still makes sense in any reasonable range of funding costs that we can imagine. I'm not focused on a specific number for our funding cost as of right now, as long as it's within a reasonable range, and we feel like we can deal with anything that the market is likely to hand us. Can you just define maybe what a reasonable range might be? Because I think some recent transaction would kind of fall outside of that reasonable range. Again, I wouldn't want to speculate on a particular number. I think if you saw the maximum rate that we use, you'd be very comfortable. Great. Thank you. Thank you. Your next question comes from the line of David Wells with Thompson Research Group. Hi, everyone. Morning. If I look at the 5% to 10% overlap for a store base, does that include RSC's express locations, or is that just the pure standalone? That's the percent of the total that we have. Obviously, express store, on-site, full-line branches. As we get into more detail, we'll make assessments about how many of each of the different types of stores might be consolidated. But the percentage is a comparison to the total count. Okay. Looking at the synergy analysis, from a cost bucket perspective, my sense is that the majority of that would come out of the SG&A line. Is that a reasonable assumption, or is it going to bucket out into some of it's going to be cost of rental as well? Certainly, the majority would be out of SG&A just because the corporate and field overhead balance is a pretty significant portion of the 200. But we expect material operating saves in the cost of rent lines as well. Your next question comes from the line of Ted Grace with Susquehanna. Hi, Ted. Hey, guys. Congratulations. How you doing? Good. Thank you. Just a couple quick ones. On the synergy side, I just wanted to make sure I understood the message. Do you anticipate to capture $200 million within the first 12 months, or you would exit at a $200 million run rate? All right. Was that the first, you saying for the first year or total? Yeah. In the first year, I think, the way I read the slide deck was you'd capture two-thirds of the $200 million in the first 12 months. But then I thought I heard Bill say it might be a run rate exiting the first 12 months. So I just wanted to get clarity on that point. Sure. So maybe more than you asked, but the fully developed run rate of $200 million, is the fully developed number. At the end of the first year, we expect two-thirds of that as a run rate of savings. Does that make sense? Okay. Yeah. You would not anticipate capturing those two-thirds in the first 12 months, you would exit? That is exactly right. Okay. Would you anticipate capturing the remaining one-third in the next 12 months? Yes. We are saying fully developed by the end of year 2. Okay. Could you just give us order of magnitude, what to look for in one-time charges? We've made some estimates. You guys want to hear a number? Let's do. In the area of $150 million to $170 million, just to put a number there. It's really difficult at this point. Some things you can estimate. Others, you have to get deep into it, to really be able to say. For example, while we give a total number for the branch consolidations, we haven't identified the specific branches, therefore, we can't tell you the specific lease expense Right for getting out of those leases that we'll incur. So it's a really difficult art at this point, but call it $150 million to $170 million, in that range. Okay. In terms of the timing of realizing those one-times, would it probably look similar to the synergy number? Maybe two-thirds in the first year and one-third in the second year? I'd front-end load it a little bit more than that. Okay. The last thing I just wanted to ask is on timing. I know you gave a 2Q estimate. Would you think it's in the earlier half of 2Q or the later half? Does that anticipate any second review by the regulatory guys? Would you be subject to DOJ or FTC review? Who knows, is the answer to the timing question. Is there a lawyer in the house? I'll let the lawyers respond on who's reviewing it. Your final question comes from the line of Yilma Abebe with JP Morgan. Morning. Good morning. Thank you. Bill, one clarification. Did I hear you say that you do not intend to use the equity claw for the 10% notes? That's right. Why is that? Well, as I said, we're examining the details of exactly how we'll retire that note. I don't know that I want to offer a lot of detail at this point. But we will comply with the requirements of the indenture. Okay. Thanks. My second question is, I think I heard you say the financing needs are going to be financed in the high-yield market with a mix of secured and unsecured. Any sense in terms of the breakout there? So again, this is all fluid, and it's well in advance of when we expect the close to happen. We're finalizing our plans. I think it's fair to say we won't be dramatically different in the secured issue than what we retire in the secured note that's going to be retired. Thank you. That was our final question, and I'd like to turn the floor back over to Mr. Kneeland for any closing remarks. Great. Thanks, operator. First and foremost, I want to thank everybody for joining us this morning. I'll end this by going back to what I said at the beginning. Very excited about this transaction. We believe that we're partnering with the right partner here with RSC. It's about the best of both companies. With regards to timing is right. We're both poised for growth. As you heard on the update on the fourth quarter, we expect to be accretive to a cash flow EPS in the first full year. We're developing and creating a leading North American equipment rental company. We are both closely aligned on our culture. So I'm very excited about this. As I stated before, we'll continue to communicate on a quarterly basis. So thank you very much. Thank you. This concludes today's conference call. You may now disconnect.