Hertz Plans Equipment Rental Business Spinoff
NEW YORK ( The Deal ) -- Hertz
Park Ridge, N.J.-based Hertz said that its board had approved the split of its car rental and fleet leasing businesses from the equipment unit, which will take the Hertz Equipment Rental name and trade as an independent entity. The company said it intends for the split to be completed by early 2015, and should be tax-free for Hertz shareholders.
Hertz on Dec. 31 adopted a one-year shareholder rights plan in response to reports that activists were taking an interest, with Carl Icahn and Daniel Loeb's Third Point both reportedly accumulating shares. Hertz, which in 2012 bought Dollar Thrifty Automotive Group for $2.3 billion, saw its shares lag those of archrival Avis Budget Group
The company said proceeds from the spin will be used to pay down its debt and support a newly approved $1 billion share repurchase program, replacing a $300 million share repurchase program announced in 2013. Total repurchases could reach 20% of Hertz's shares outstanding. Post-deal, the company said it expects to maintain a net debt-to-Ebitda ratio below 3.5, and said if all goes well it could be positioned to return additional capital to shareholders.
Analysts have said ownership of the capital-intensive equipment unit, which rents backhoes, bulldozers and the like, ties up capital that could otherwise be used for other purposes. Hertz chairman and CEO Mark P. Frissora said the split would benefit both companies, creating more earnings stability and hopefully boosting returns.
"Our rental car and equipment rental businesses are leaders in their respective markets with valuable assets and tremendous long-term potential," Frissora said. "We believe there is a potential for multiple expansion even if both businesses only trade in line with their peers."
Frissora will remain chairman and CEO of Hertz, with leadership of the equipment unit to be determined as the separation plans are finalized.
Post-deal, Hertz would operate about 11,555 rental locations worldwide as well as related operations, generating annual sales of about $9 billion. The equipment business has about 335 branches in North America, Europe, China and Saudi Arabia, and generated $1.5 billion in sales in 2013.
Bank of America Merrill Lynch