After years of trying to get over its reputation for being a bully that was, perhaps, a little too quick with the brass knuckles, this private-equity heavyweight appears to be suffering a major setback in the form of a pesky, $4 billion deal that just won’t go away. How what was once a happy relationship quickly degenerated into a game of dodgem cars that likely won’t be rectified outside the courts. Can this marriage be saved?

On the morning of Nov. 12, Cerberus Capital Management chairman Stephen Feinberg summoned bankers for United Rentals Inc. to his Park Avenue office to tell them he wanted to renegotiate his company's $4 billion buyout of the equipment-rental company. He asked for an audience with the board of United, according to people familiar with the matter, a request that was later denied.

The meeting touched off a chain of events that appears to have killed the July deal and landed the matter in a Delaware court, where United Rentals sued yesterday to compel Cerberus to complete the deal. (Cerberus responded that it is not bound to complete the deal and only has to pay a $100 million breakup fee to walk away.) The move surprised both United Rentals shareholders and Cerberus' bankers, who expected the deal to close Nov. 16.

Cerberus's termination of the deal, coupled with turmoil in some of its other investments, shows how even Wall Street's most-respected names are being battered by upheaval in the credit markets and economy at large.

The ordeal is a turnabout for Cerberus, which had spent years distancing itself from its once bare-knuckle image. In the summer, it earned kudos for how it handled the tricky financing of its Chrysler buyout. Its earlier purchase of General Motors's financing' arm, GMAC, was a sign that it had truly arrived.

Life in the big leagues has proved tough. Cerberus declines to explain why it backed away from United Rentals. A slate of investments related to the subprime-mortgage business have proved difficult. Compounding matters is the fate of a $4 billion sale of bank loans tied to the Chrysler deal, which was to take place this week. It will likely be postponed, a person familiar with the sale says.

Cerberus is confident about the health of its investments, says a person close to the firm. And its $5.5 billion Cerberus Int. Ltd. fund, run by Cerberus's founder, Mr. Feinberg, was up about 16% through August, according to investors. A lot has changed in the markets since then…

(Continue reading on The Wall Street Journal).

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