Electro Rent Seeks Price Reduction in Purchase of GE Unit

Electro Rent Corp. said Monday that it’s entitled to a reduction in the $241 million it paid General Electric Co. for a computer and test equipment rental business because it found “material issues” in a balance sheet audit and the unit’s recent results.

Van Nuys-based Electro Rent, the largest U.S. short-term rental company for computers and general electronics-testing equipment, said it expects fiscal first-quarter earnings to fall from the year-earlier level, partly because of problems at the acquired business. Its shares fell $3.44 to close at $17.81 on Nasdaq.

The company had expected its sales to more than double after the November acquisition, but instead said there were more costs and less revenue than expected. Electro Rent is struggling with slowing business, much like big computer and test equipment makers.

“GE issues are part of the problem, but they certainly aren’t all of the problem,” Electro Rent Chief Executive Daniel Greenberg said. “I’d hoped to avoid all of the carnage that we’re witnessing elsewhere.”

Fairfield, Conn.-based GE said that it’s in arbitration with Electro Rent and that it sold the business for a fair price.

Electro Rent didn’t say what issues the audit revealed or how much of a price reduction it’s seeking. The company did say it may be entitled to “additional remedies” provided for under the purchase agreement with GE.

“We sold the business to Electro Rent for an absolutely fair and reasonable price, and we are in arbitration at this time to make that fact demonstrable to Electro Rent,” GE spokesman John Oliver said.

A “weak business environment” and the problems with the acquisition will push profit for the first quarter ending Aug. 31 below the year-ago $6.98 million, or 28 cents a share, Electro Rent said.

Revenue for the fiscal year ended May 31 rose 70% to $255.5 million from $150.5 million a year ago.

Electro Rent bought the unit from GE Capital, GE’s finance arm. Problems aside, Greenberg said the acquisition still puts the business in better stead.

“I much prefer being in this position with much higher volume and a much larger engine to work with than what we would have been left with had we seen the persistent volume decrease without having the GE acquisition,” he said.