Plant hire group Ashtead has agreed to buy a major US competitor for $1 billion (£550 million).

The firm, operating as A-Plant and Tool Hire Shops in the UK, said the acquisition of NationsRent would make it the third largest rental group in the US and second largest globally.

The deal will see Ashtead add NationsRent's 268 US hire shops to its own 209 Sunbelt Rental sites covering 28 states.

Ashtead said it would pay $600 million (£328.4 million) for NationsRent and take on $400 million (£219 million) of debt. It will be funded by the issue of £150 million worth of new shares, a new credit facility and loans.

T he company said it expected the takeover to be profitable by the end of the next financial year, helped by annual cost savings of "at least £20 million".

Surrey-based Ashtead and NationsRent hire out equipment such as forklift trucks and excavators as well as power saws and ladders to customers in the construction industry.

The business has a number of Midlands operations including at Aston, Coventry, Erdington, Redditch, Walsall Wood and Wolverhampton.

Ashtead chief executive George Burnett said: "Nation-sRent and Sunbelt have similar rental fleets in age and mix and through combining we believe we will enjoy benefits in scale in customer service and buying power."

Ashtead said growth in the US would be underpinned by a continuing shift from ownership to rental of equipment.

It also pointed to the 2005 Federal Highway Bill which increased funding of the road network, while it is also set to benefit from rebuilding the Gulf Coast, badly damaged by last summer's hurricane season.

NationsRent is the sixth largest equipment rental business in the US having emerged from Chapter 11 bankruptcy protection in 2003 a nd had a turnover of $593.5 million (£325 million) last year.

Ashtead's turnover hit £628 million last year from 428 sites across the UK, US, Canada and Singapore. The Leatherhead-based firm has more than 6,000 staff. The b usiness is valued at £619 million.

Ashtead has long said a shift from ownership to rental of equipment underpinned future US growth.

Mr Burnett said the enlarged company would be the third biggest player in the United States despite its market share being just under five per cent. He forecast further consolidation.

The acquisition is expected to be earnings enhancing in the financial year ending April 2008, Ashtead said.

Panmure Gordon analysts said: "Ashtead is now an even more highly geared play on the US non-residential construction market which, unlike Ashtead's last big acquisition, looks set for growth. We remain buyers."

Ashtead resumed paying dividends this year after a hiatus linked to debt problems from acquisitions that saw shares sink to 2p in March 2003.

On June 28, Ashtead fore-cast "further significant progress" as it posted a tripling of annual profit. Its pretax profit before exceptional items was £67.5 million in the year to the end of April. Revenues rose 22 per cent to £638 million.

NationsRent is two thirds owned by Phoenix Group and US investors Baupost.