By Mridhula Raghavan
March 18 Hertz Global Holdings Inc said
it would spin off its equipment rental business, raising $2.5
billion to reduce debt and fund a $1 billion share buyback.
Hertz, the No. 2 U.S. car rental company behind privately
owned Enterprise Rent-A-Car, has been under pressure from
investors to shed the business and focus on car rentals.
The equipment business, which rents out equipment ranging
from small tools to earth movers, generated revenue of about
$1.5 billion in 2013, about 14 percent of Hertz's total revenue.
The company said the spinoff would involve a one-time
payment of $2.5 billion from the rental business along with a
tax-free distribution to shareholders.
Hertz's shares, which have risen 28 percent in the past
year, were down 0.26 percent at $27.15 in late-afternoon trading
Hertz's remaining businesses would include the Hertz,
Dollar, Thrifty and Firefly car rental brands and the Donlen
fleet leasing and management business.
The company put in place a poison pill in December to ward
off any takeover attempts at a time when activist investors such
as Daniel Loeb's Third Point Capital were buying up shares.
Hertz operates in a consolidated market, along with Avis
Budget Group Inc and Enterprise, which together control
about 90 percent of the U.S. car rental market.
Hertz, which gets about 50 percent of its revenue from
airport rentals, is expected to get a boost in 2014 as spending
on business and leisure travel picks up in a recovering U.S.
The new company, Hertz Equipment Rental Corp (HERC), is
expected to benefit from a recovery in non-residential
construction. Its biggest competitor is market leader United
"One of the challenges or opportunities for the HERC
management team post the spinoff would be to improve operational
deliveries - both pricing and time utilization," Jefferies
analyst Justin Jordan said. Time utilization is a measure of the
time equipment is rented out during a year.
Hertz said on Tuesday its fourth-quarter adjusted net profit
fell 13 percent to $121.1 million due to lower-than-expected
rental prices and higher expenses. Revenue rose 10.2 percent to
BofA Merrill Lynch and Barclays were financial advisers to
Hertz for the spinoff. Jenner & Block LLP and Debevoise &
Plimpton LLP provided legal counsel, while KPMG was tax adviser.
The spinoff will close by early 2015, Hertz said.