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Bruce Berkowitz Is Selling United Rentals Inc. While Insiders Are Buying

April 09, 2009 | About:

First off, United Rentals Inc. is one of North America's largest equipment rental companies with over branches in the majority of states several Canadian provinces and Mexico. The company offers for rent different types of equipment to customers that include construction and industrial companies, manufacturers, utilities, municipalities, homeowners, and others.

According to GuruFocus Data, Investment Guru Bruce Berkowitz accumulated a peak of 11.18 million shares of United Rental Inc. up as of October 20, 2008. The Company’s total shares outstanding were about 60 million. As a result, Berkowitz’s substantial ownership (about 18.6%) alerted the Board of Directors of URI, and in response they modified Company's Rights Agreement, limiting the ownership of an investor from 25% to 15%. Bruce Kerkowitz was apparently in appetite for more shares and more ownership, so in a unusual letter he sent to the Board of Directors, he protested such an action.

How did Bruce Berkowitz think of United Rentals Inc.?

In at least two occasions he remarked positively on the company and its management.

Once was during the Annual Fairholm Funds Conference Call, an shareholder asked:

Please expound more on the issues you have on with the United Rentals management. Can these issues derail the company? And are you convinced that the country’s stimulus plan will have a positive effect on URI

To that Bruce answered:

Well, I’m not convinced that the stimulus plan will have a positive effect o URI,. The issues that I’m concerned about can derail the company. But I am happy to report that the company appears to now be making moves in the right direction regarding capital allocation.

The Company generates a tremendous amount of cash. We just want to make sure it isn’t wasted. I believe the new CEO and his operating team are heading in the correct direction. And I think the board now fully understands the importance of putting that free cash – and the significantly higher amount cash – to work, such as , perhaps, in the repurchases of the company’s debt at significant discount.
Another occasion was in the interview with Outstanding Investor Digest. The interview was conducted sometime earlier, but the report was published recently on March 17, 2009. In the interview, Bruce Berkowitz and his partner Charlie Fernadez called United Rentals one of the two “greatest misperceptions and most outrageous valuation discrepancies today”. On United Rentals, Bruce Berkowitz commented:

And United Rentals is generating a tremendous amount of cash in the equipment rental business – even though their unitlization rates per unit haven’t been going up yet as they have been at Hertz’s equipment rental business. We’re talking about a company generating free cash flow of $2 per share. And the stock is selling around $4


For the record, Bruce stated that he bought his shares at around $11 per share. Apparently, he likes the valuation of the company.

In the OID interview, Bruce Berkowitz also complained about the fact that the BOD decision was preventing him from buying more shares.

Recent Trading Activities of Bruce Berkowitz, and of the Management Insiders

If Bruce Berkowitz’s desire was to acquire more of the company, his action has not matched up. According to GuruFocus Data, Bruce Berkowitz has been on the selling side since November 3, 2008, shortly after his October 20, 2008 Letter to the United Rentals BOD letter. He sold 5,575 shares during on that day and he has been a seller since then. During the five months since November 3, 2008, his holding in URI has shrunk from 11.18 million shares to a little over 10 million shares. In other words, He has quietly sold over one million shares or about 10% of his holdings in the company.

What prompted Bruce Berkowitz to sell at these depressed prices is a good question for him in the next conference call. He typically conducts open-forum quarterly conference calls and he is very candidate in explaining his investment activities. If he is trying to reduce his holdings to 15% in order to comply with the BOD’s new rules, then he has another one million shares to sell until he reaches 9 million shares.

Interestingly, the management of the United Rentals company seems to agree with Bruce Berkowitz’s words on the investment value of the company. In the mid of March, four company insiders, including the company’s CEO and CFO bought over 34,000 shares of the company’s stocks(see the latest insider trading data below).

Insider

Position

Date

Trades

Shares

Trade Price ($)

Change (%)

FAIRHOLME CAPITAL MANAGEMENT L

10% Owner

2009-04-03

Sell

7153

$4.58

-8.52

FAIRHOLME CAPITAL MANAGEMENT L

10% Owner

2009-04-02

Sell

28852

$4.51

-7.1

FAIRHOLME CAPITAL MANAGEMENT L

10% Owner

2009-03-30

Sell

55579

$4.15

0.96

FAIRHOLME CAPITAL MANAGEMENT L

10% Owner

2009-03-24

Sell

70113

$3.84

9.11

FAIRHOLME CAPITAL MANAGEMENT L

10% Owner

2009-03-18

Sell

22221

$3.7

13.24

PLUMMER WILLIAM B

EVP and CFO

2009-03-16

Buy

14000

$3.52

19.03

KNEELAND MICHAEL

CEO

2009-03-16

Buy

12500

$3.51

19.37

Dixon Joseph A.

VP - Sales

2009-03-13

Buy

2830

$3.42

22.51

BRITELL JENNE K

Director

2009-03-13

Buy

5000

$3.37

24.33



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Rating: 2.9/5 (16 votes)

Comments

scubasteve10
Scubasteve10 - 5 years ago
Someone correct me is i am wrong. But i believe the sales of URI were not the Fairholme Fund, but the parnterships in which Fairholme Captial Mgmt. is an advisor. I believe they are closing the partnerships, hence the sales.

Someone correct me if i am wrong, b/c i'd like to know for sure.
Cowboy77
Cowboy77 - 5 years ago
This would totally contradict what he said about URI in OID. He raved about the company. I believe he was even buying their Senior Debt. I'm assuming this sale is technically related. If not, I'll never believe anything else he promotes.
Alex Garcia
Alex Garcia premium member - 5 years ago
I believe Scubasteve is right. I remember Bruce stating they are consolidating their partnerships under one umbrella for operations purposes.
heisenman
Heisenman premium member - 5 years ago
I believe that the fund acquired some of the URI bonds. Perhaps Berkowitz determined that owning the "high yielding" bonds were a safer play than the common shares?
rlabbe
Rlabbe - 5 years ago
If you read the footnotes of the Form 4's for these sales, you will see

"The securities were held in a managed account managed by Fairholme pursuant to an investment management agreement that was terminated. Accordingly, Fairholme and Mr. Berkowitz are no longer deemed to be beneficial owners of such securities, which were sold at the owner's direction."

Really, you have to read all of these forms. Once again, the interesting/pertinent bits are in the footnotes. Wasn't it Berkowitz that said he reads reports backwards, so he gets the footnotes first?

I'm not trying to be snarky, I was wondering exactly the same thing until I went back and really studied the forms. It's a good education/reminder to read everything in a report.

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