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Bruce Berkowiitz Continues Selling United Rentals Inc Shares

October 12, 2009 | About:
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guruek

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(GuruFocus, October 12, 2009)According to GuruFocus Data, Investment Guru Bruce Berkowitz continued to reduce shares held for his Fairholme Fund. GuruFocus data shows that he recently reduced 29.06% of his previous holding of 10.07 million shares to the current holding of 7.14 million shares, at a price of around $10.3 per shares. Berkowitz’s holding is at 11.88%, below the 15% set by the management.

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.

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 Berkowitz 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 on Feb 11, 2009, when 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 Berkowitz 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 Company Insiders are list below:

Insider Position Date Trades Shares Trade Price ($) Change (%)
Alvarez Jose B Director 2009-08-03 Buy 2400 $7.6 30.79
FAIRHOLME CAPITAL MANAGEMENT L 10% Owner 2009-04-13 Sell 57435 $4.57 117.51
FAIRHOLME CAPITAL MANAGEMENT L 10% Owner 2009-04-03 Sell 7153 $4.58 117.03
FAIRHOLME CAPITAL MANAGEMENT L 10% Owner 2009-04-02 Sell 28852 $4.51 120.4
FAIRHOLME CAPITAL MANAGEMENT L 10% Owner 2009-03-30 Sell 55579 $4.15 139.52
FAIRHOLME CAPITAL MANAGEMENT L 10% Owner 2009-03-24 Sell 70113 $3.84 158.85
FAIRHOLME CAPITAL MANAGEMENT L 10% Owner 2009-03-18 Sell 22221 $3.7 168.65


According the GuruFocus data, last time Berkowitz sold the stock was during March to April, 2009 period, when the price was much lower.

Interesting, a company insider, Director Jose B Alvarez bought 2,400 shares at $7.6 per share.

Comments

Berkowitz wanted to get more shares in the past and the management said no more than 15%. Now that Berkowitz sold down to below 15%, is it a vote of no-confidence? If Berkowitz was correct on the estimate of about $2.00 per share free cash flow, the current price of around $10 is not that expensive. If not pressured by the company and not due to valuation concerns, then why he is selling a large chunk?

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