Hertz Leveraged Buyout

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1. Introduction In spring of 2005, Ford announced to explore a sale of its subsidiary Hertz, which is a well-known car rental business as well as a strong source of revenues. At that time, the main emergent situations for Ford are the underperformance of its main business line and the potential downgrade of its credit rating. Therefore, even facing the decreasing stock price and negative market reaction, Ford still insisted to make this transaction, and expected to gain some capital flexibility and to focus back to its main business, especially in North American segment. In order to maximize potential gain from this sale, Ford designed a dual-track process to finalize the deal, which meant that Ford was open to private bidding offers for a leveraged buyout (LBO) transaction, and, at the same time, seeking possibility of an Initial Public Offering (IPO). This structure ensured Ford to a more favorable selling price and placed more pressure on buyout bidders. In term of Hertz, it is a well established business and has global footprints, with two business segments: car rental business “Hertz Rent A Car” (RAC) and equipment rental business “Hertz Equipment Rental Company” (HERC). Furthermore, it has a stable revenue history that has had an extraordinary amount of consecutive growth. From the perspective of a private bidding group, this article is aimed at justifying Hertz as a desirable LBO target, evaluating both financial and operating synergies from this deal, and estimating the enterprise value of Hertz and the return from this LBO. 2. Discussion 1) Synergies from Hertz LBO Operating synergies: The economic recovery and travel rebounding enable Hertz to benefit from a larger transaction volume and a longer rental length. There is also room for operating improvement and cost saving. EBITDA margins are 8% (RAC) and 17% (HERC) in 2005, lower than the peer

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