Why McGrath RentCorp shares fell on Wednesday

In its 45-year history, McGrath RentCorp (MGRC -3.13%) had much encouraging news to report to its shareholders and the world at large. Unfortunately for the business-to-business equipment rental specialist, its headline news on Wednesday was not so positive. Amid this, investors traded out of the stock to leave it down more than 3% in price. This was a more pronounced slide than the 0.3% decline a S&P 500 index of the day.

The merger agreement has been terminated

McGrath announced that and peer WillScot Holdings (WSC -2.54%) they mutually agreed to call off the planned merger. Under the terms of the merger agreement between the two companies, McGrath is to receive a $180 million termination fee from WillScot.

The pair initially announced their relationship in January. Under the terms of their agreement, WillScot was to acquire McGrath for $3.8 billion in cash and stock, with the former accounting for 60% of the acquisition and the latter the remainder. This amount represented a 10% premium to McGrath’s share price on the trading day prior to the announcement.

However, because McGrath and WillScot operate in similar segments and are major players in their niches, the deal has attracted the attention of the Federal Trade Commission (FTC). Shortly after the announcement, the government agency subpoenaed the two companies for information to assess whether the merger would be anti-competitive.

Steady as it goes

In its press release on closing the merger, McGrath promised that its “strategic focus on our modular and portable storage growth opportunities will continue.” But the company’s investors, happy with the share price boost provided by the initial announcement, would rather see the deal completed than hear the promises of a business-as-usual strategy.