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UVA-F-1560
Rev. 04 17, 2009
BIDDING FOR HERTZ: LEVERAGED BUYOUT
Guide
In late summer 2005, Greg Ledford, managing director and head of automobile and travel buyouts in the Carlyle Group, found him self examining his BlackBerry on top of the Great Wall of Cina. Though he previously planned to get sightseeing with his daughter, his immediate emphasis was to finalize the the second-largest leveraged buyout of all time. The target in question was Hertz, a subsidiary with the Ford Engine Company, that has been up for sale. Ledford needed to decide the price he and his co-investors would present for Hertz as well as assess the potential returns and hazards of the offer. Already months of work, various dollars of due diligence, and arrangement of tentative auto financing had gone in the bid. Further complicating matters, this individual knew he faced tough competition from a rival acquistion group, without doubt engaged in a similar process.
The race to win Hertz had been put in place several months previously, when William Clay Ford Jr., the chairman and CEO of Ford, declared plans to explore “strategic alternatives for Hertz in Apr 2005. That announcement was followed in June june 2006 by the processing of an S-1 registration assertion setting up a “dual track process that would result in a Hertz GOING PUBLIC should additional sale potential customers fail. Ledford, who talked to older Ford managers on a regular basis, experienced gleaned that there was fascination on Ford’s part to get an overall sale of Hertz. He believed a private deal that was competitive with an GOING PUBLIC would be looked at favorably by simply Ford because of greater in advance cash takings and conviction of delivery. When no strategic customer surfaced, Carlyle, Clayton, Dubilier & Grain (CD&R), and Merrill Lynch Global PrivateEquity (collectively “Bidding Group) joined up with forces to bid on Hertz. It confronted competition from another buyout consortium that included The state of texas Pacific Group, Blackstone, Thomas H. Lee Partners VINYLSKIVA, and Baignade Capital LLC.
This case was prepared by Leslie Chaplinsky, Teacher of Organization Administration, Darden Graduate College of Business, and Felicia Marston, Professor, McIntire Institution of Business. It was crafted as a basis for discussion in the classroom rather than to illustrate effective or unproductive handling of the administrative condition. Copyright 2008 by the University of Virginia Darden School Groundwork, Charlottesville, SE TILL ATT DU ÄR. All legal rights reserved. To order copies, send a great e-mail to [emailprotected] Not any part of this publication could possibly be reproduced, trapped in a collection system, utilized in a chart, or sent in any contact form or by any means”electronic, mechanical, photocopying, recording, or otherwise”without the permission with the Darden Institution Foundation. Rev. 4/09.
UVA-F-1560
Hertz Title History
Hertz’s control history was characterized by several sales, public offerings, and leveraged buyouts (Exhibit 1). 1 The corporation was first founded in 1918 by 22-year-old Walter L. Jacobs as a car rental procedure with a simple inventory of 12 Model T Fords that Jacobs personally had repaired and repainted. The venture was immediately powerful, leading Jacobs to grow and make annual earnings of approximately of $1 million inside five years. At the $1 million mark, in 1923, Jacobs sold his company to John Hertz, president of Yellow Truck’s cab and Discolored Truck and Coach Developing Company, who gave his name to the firm, creating “Hertz Drive-Ur-Self System and a brand name that had endured ever since.
David Hertz marketed his investment three years later on to Standard Motors (GM). In 1953, GM in turn sold the Hertz homes to the Omnibus Corporation, which will simplified the company’s name to “The Hertz Corporation regarding the a open public stock offering on the Nyse (NYSE). At the end of 1987, together with Hertz management, Ford Motor Business participated in a management buyout of the business. Hertz later on became a completely independent, wholly owned or operated subsidiary of Ford in 1994. Lower than three years later, Ford released a fraction stake of shares by using a public offering on the NYSE on 04 25, 1997. In early 2001, Ford reacquired the spectacular shares of Hertz and the company once again became a completely owned part of the Ford Motor Organization.
Hertz Credit history and Organization Segments
The large buyer interest in Hertz over time was due simply to the company’s proven monetary ability. In fact , the company got produced a pretax profit each year since 1967. Throughout the period 85 to 2006, revenues had grown for a compound annual development rate of seven. 6% with positive year-over-year growth in 18 of the people 20 years. Over the past same period, Hertz got emerged as a truly global enterprise; completely car rental procedures in 145 countries, and more than 30% of the total profits were coming from outside of the us. Hertz was among the most worldwide recognized brands and had been listed in BusinessWeek’s “100 Most effective Global Brands (limited to public companies) in 2005 and every season since it was eligible for inclusion.
Hertz currently operated in two organization segments: rental cars (“Hertz Rent A Car or “RAC) and equipment rental (“Hertz Equipment Local rental Company or perhaps “HERC). In 2005, it was estimated that RAC could comprise 81% of organization revenues and HERC 19%. RAC was supported by a network of franchises that together with company-owned facilities controlled in more than 7, six-hundred airport and local locations across the world. The company led its competition inside the airport car rental market in Europe with operations in 69 major airports. Hertz owned and leased autos from a lot more than 30 producers, most of which usually it had long term leasing.
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