MOST NOTEWORTHY: Synthesis Energy, Lamar Advertising and Urban Outfitters were today's noteworthy initiations:

• Merriman believes Synthesis Energy Systems Inc (NASDAQ: SYMX) is well-positioned as it begins to leverage its exclusive global license for U-GAS technology and commences the deployment of its coal-to-methanol production facilities in China. The firm started shares with a Buy rating.
• Lamar Advertising Company (NASDAQ: LAMR) was initiated with a Buy rating and $51 target at Jefferies, as they believe shares are oversold at current levels.
• William Blair believes Urban Outfitters Inc (NASDAQ: URBN) will benefit from both strong sales and a steep margin recovery in the coming two years. The firm assumed coverage of Urban with an Outperform rating.

OTHER INITIATIONS:

• Lehman started United Rentals Inc (NYSE: URI) with an Equal Weight rating and $22 target.
• Credit Suisse assumed coverage of Mellanox Technologies (NASDAQ: MLNX) with a Neutral rating.
• EPIQ Systems Inc (NASDAQ: EPIQ) was initiated with a Market Perform rating at Wachovia.

It was one of the biggest court showdowns in Corporate America for 2007 -- that is, the fight between Cerberus Capital Management and United Rentals (NYSE: URI).

The issue: would Cerberus be forced to buyout the company?

Well, Wall Street said it all: the stock price of United Rentals plunged 17% to $17.91. Yes, it's another harsh lesson in the post-boom private equity world.

If you read the legal decision, the Delaware Court justice, William B. Chandler III, spun some clever mythical allusions in his opinion. Yet, despite this fun, it was a pretty serious look at the meltdown of a $4 billion transaction.

Interestingly enough, this is a classic contracts case. Both parties are sophisticated players -- with expensive attorneys -- and understand the ramifications of their decisions.

So, Chandler's key contention is that United Rentals should have realized that there was no intent for Cerberus to be required to do a deal. If anything, the contract language was fairly fuzzy -- as were the negotiations.

As a result, Cerberus will need to pay a $100 million breakup fee -- which is pretty much small-time stuff.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates DealProfiles.com.

United Rentals (NYSE: URI) recently down $3.72 to $17.85:

WSJ said that the court found against URI in the Cerberus case. URI was suing Cerberus Capital Management for walking away from a $6.6 billion buyout of URI. URI January option implied volatility of 130 was above its 26-week average of 33 according to Track Data, indicating larger movement.

Options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com

Shareholders at United Rentals (NYSE: URI) have a right to be mad. Hedge fund Cerberus Capital Management offered to buy the company. Shares rose from about $27 to over $34.

Then Cerberus walked. United Rental stock fell to $20.76 and has not recovered much. The entire matter headed to court. The legal battle was to begin today in Delaware Chancery Court. That has been delayed while the two sides talk.

Cerberus said that it was within its right to break off the contract. According to The Wall Street Journal, "the delay could help United's flagging stock price, as well as clear up some of the negative public perception of Cerberus, a Wall Street buyout shop that provided little detail for why it walked away from its agreement."

In other words, it may have been in the financial interests of Cerberus to walk out, but its may be a shaky legal ground.

Private equity firms have broken a number of these buyouts now, and, in some cases, contracts allowed them to do so. The court system is likely to catch up to them at some point soon. If settlement talks with United do not work out, it may be in this case.

Just one announcement that an LBO shop has had to pay hundreds of millions in damages would send a real shudder through the industry.

Douglas A. McIntyre is an editor at 247wallst.com.

Yesterday, United Rentals Inc. (NYSE: URI) published an ominous press release saying that its private equity sponsor, Cerberus Capital Management, "is not prepared to proceed with" the $7 billion transaction. Of course, with the uncertainty in lending markets, this should not necessarily be a surprise. Nonetheless, the shares of United Rentals plunged 30%.

United Rentals is the largest equipment rental company in the US. Annual revenues are about $3.7 billion and EBITDA is about $1.1 billion (which is always something private equity folks like to see).

If you take a look at the merger agreement, the break-up fee is $100 million. That's a pittance for Cerberus. In other words, if the cost of financing has spiked -- making a deal much more expensive -- why not just pay the $100 million? But the question is: may United Rentals have a case for requiring the deal to get done? Well, that's where things get fuzzy. I'm really not sure.

That's a good question for attorneys. And, yes, United Rentals has retained Orans, Elsen & Lupert LLP. So we may see showdown in the Delaware courts. If you want to see a great analysis of the legal argument, you can check out the M & A Law Prof Blog.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements.

Arena Pharma (NYSE: ARNA) skewed option implied volatility suggests risk into Autumn review. ARNA, a clinical stage biopharmaceutical company focusing on G protein-coupled receptors (GPCRs), closed at $14.32. ARNA's Lorcaserin, a treatment for obesity, has a Date Safety Monitoring Board (DSMB) review in the autumn of 2007. Bank of America started coverage of ARNA with a Neutral rating and a $16 price target on 5/24. BAMO say's "we expect a positive DSMB review, which could provide significant short-term gains in the stock in late 2007." ARNA June option implied volatility is at 44, October at 90 and January is at 66 according to Track Data, suggesting larger risk this autumn.

United Rentals (NYSE: URI) volatility Flat as URI explores strategic alternatives. URI, the largest equipment rental company in the world, closed at $32.85. URI announced on 4/10/07 that it is exploring strategic alternatives. URI June option implied volatility of 33 is near its 26-week average according to Track Data, suggesting flat risk.

Daily Option Update is provided by Stock Options Specialist Paul Foster of theflyonthewall.com.

While you've been busy scouring over this week's earnings reports, back here at rumor central there's been a number of "head ups," but not all that much to write home about, or to send you phoning your broker. But take note of these just for the heck of it.

UNITED RENTALS INC (NYSE: URI)

It's not news that the world's largest rental company has been for sale for a couple of weeks, but once again, as it is for so many speculative situations as this, there's an ongoing undercurrent of chatter. The CEO is retiring in June, and the COO will then hold down the fort. UBS (NYSE: UBS) and Credit Suisse (NYSE: CS) are offering advice. The company's in pretty good shape, and should attract some interesting offers. The stock keeps ticking slowly upward. But the rental market has slowed some. Stay tuned.

EASTMAN KODAK COMPANY (NYSE: EK)

The stock's been moving on up. Take over? Cash infusion? Fabulous new product release? Not one of us outsiders knows for sure what's up. So, what is up? Well, they sold the health imaging business and should get paid its $2.35B soon. Is Hewlett-Packard (NYSE: HPQ) a potential merger partner? Maybe, maybe not. Last month it was reported that Kodak had eyes for OmniVision Technologies (NASDAQ: OVTI). Maybe after quarterly results are released May 4 there'll be a clearer Kodak moment. Just don't count on them to try and rejoin the Better Business Bureau anytime soon. Now there's a rumor.

CUMMINS INC (NYSE: CMI)

Shares hit a record high the other day, at least one brokerage firm upgraded the stock, and reports were that the engine maker was...you guessed it...the target of takeover "expectations." Is that like, expecting? Like expecting to be courted and bought? Fiat (NYSE: FIA) could be expecting cause they are among the "rumored" to want to expand their truck division in good old North America. Cummins, one of the few remaining independents worldwide, meanwhile has been humming along, with three straight years of record earnings. What a machine, eh? Hmmm.

MOST NOTEWORTHY: United Rentals, Inc (URI), Nintendo Co (NTDOY), Shuffle Master, Inc (SHFL), CheckFree Corp (CKFR) and The Kroger Co (KR) were some of today's noteworthy downgrades:

• JP Morgan cut United Rentals Inc (NYSE: URI) to Underweight from Neutral believing the company's strategic alternatives and valuation upside are limited given slowing end markets and lack of sources to unlock value.

• Citigroup downgraded Nintendo Ltd (OTC: NTDOY) to Hold from Buy.

• Prudential downgraded Shuffle Master Inc (NASDAQ: SHFL) to Neutral from Outperform following a field trip to Macau, as they are incrementally more negative given competition in electronic table games and continued market share erosion in slots.

• JMP Securities cut CheckFree Corp (NASDAQ: CKFR) to Market Outperform from Strong buy and has a greater degree of certainty that Bank of America (BAC) is planning on moving its payment warehouse portion of online bill pay in-house over an unspecified period. The firm believes earnings can be impacted by 25c-30c annually.

• HSBC downgraded shares of The Kroger Co (NYSE: KR) to Neutral from Overweight.

OTHER DOWNGRADES:

• ThinkEquity downgraded KLA-Tencor Corp (NASDAQ: KLAC) to Accumulate from Buy.

• Cowen downgraded Salesforce.com, Inc (NYSE: CRM) to Neutral from Outperform and removed the company from its Focus List citing reduced visibility, lack of near-term catalysts and potential increased competition from Oracle Corp (ORCL) and Microsoft (MSFT).

• JP Morgan cut Dr. Reddy's Laboratories Ltd (NYSE: RDY) to Underweight from Overweight to reflect the increased risk of changing market conditions in Germany.

• Matrix USA downgraded Coinstar, Inc (NASDAQ: CSTR) to Sell from Hold on valuation.

• Piper Jaffray cut Cognizant Technology Solutions Corp (NASDAQ: CTSH) to Market Perform from Outperform.

• JMP Securities downgraded Dendreon Corp (NASDAQ: DNDN) to Market Outperform from Strong Buy.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).