Hertz Lbo

1892 Words Feb 6th, 2013 8 Pages
Appendix VI: Hertz Corp. Case Study

Overview: The Hertz buyout is one of the largest private equity deals. It drew criticism in the media and from union members, after the company’s new owners paid themselves $1.3 billion in dividends not long after the transaction closed and ultimately financed the payments by selling stock to the public. The company has realized hundreds of millions of dollars in improved financial results annually, but also has cut thousands of jobs as it has sought to make operations more efficient. Figure 7 provides an overview of the LBO transaction, including a time line of key events. Background: Hertz says it is the world’s largest general use car rental company, with approximately 8,100 locations in about 145
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Eventually, Ford went for the private sale, in a deal valued at $14.9 billion, which included $5.8 billion of corporate debt and $6.8 billion of debt secured by the company’s vehicle fleet. At the time, it was the second largest leveraged buyout ever done. The private equity firms invested $2.3 billion, with each contributing an approximately equal amount, to acquire ownership of all of Hertz’s common stock. Strategy and implementation: Even before acquiring Hertz, CD&R had identified three main areas for improving Hertz’s operations: the off-airport market segment, high expenses in European rental car operations, and widely varying performance among individual branch locations. According to CD&R executives, Hertz had significantly increased its number of off-airport locations, for example, but was losing money. So the firm decided to close some poorly performing offices. In Europe, CD&R identified overhead expenses, such as sales and administrative costs, which were several times higher than in the United States and thus would be a target for change. After the buyout, the consortium helped Hertz management develop operational and strategic plans and implemented a new management compensation method, according to Carlyle executives. The plans included, for example, efforts to increase market share in the leisure segment and to improve buying and managing of vehicles. Carlyle executives said hiring a new chief

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