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(NYSE: HTZ) Richard Hunt '14 (RHunt14@gsb.columbia.edu) Stephen Lieu '14 (SLieu14@gsb.columbia.edu) Rahul

(NYSE: HTZ)

Richard Hunt '14 (RHunt14@gsb.columbia.edu) Stephen Lieu '14 (SLieu14@gsb.columbia.edu) Rahul Raymoulik '14 (RRaymoulik14@gsb.columbia.edu)

Investment Thesis Multiple Drivers of Value

Investment Thesis – Multiple Drivers of Value

We recommend investors buy Hertz (HTZ) stock with a target share price of $36.00, which represents ~52% upside from the current share price

Four Main Points to Investment Thesis

The market significantly underestimates the impact of Hertz's recent merger with Dollar Thrifty, which marks the completion of a ten-year consolidation that dramatically improves the competitive dynamics of the industry

The market underestimates the levers Hertz can pull to counter the negative impact of falling used car prices

Hertz has strong revenue growth opportunities in the U.S.

and will realize significant revenue and cost synergies through its acquisition of Dollar Thrifty

Divestiture of non-core Equipment Rental business would unlock substantial value by deleveraging the balance sheet

As of 4/19/13; in USD m except per share data

Current Capitalization

Stock Price

$23.72

Diluted Shares Outstanding (M)

462.0

Market Cap

$10,959

Corporate Debt

6,545

Cash

(1,105)

Unfunded Pension Liability

227

Enterprise Value

$16,626

Trading Statistics

52-Week Range

$10.22-$24.28

Dividend Yield

0.0%

Avg. Daily Volume (M)

7.7

Short Interest as % of Float

11.0%

Summary Valuation

 

2013e

2014e

EV /

Revenue

1.5x

1.4x

EV /

EBITDA

7.4x

6.4x

P / E

12.5x

9.9x

Business Overview

Business Overview

Business Description

Car Rental (2012 rev: $7.6bn): Operates through the Hertz, Dollar and Thrifty brands. Rents cars that the company owns or leases. Maintains a substantial network of car rental locations both in the United States and internationally, and the largest number of airport car rental locations in the world

Equipment Rental (2012 rev: $1.4bn): Operates through HERC brand. Rents a broad range of industrial, construction and material handling equipment. Also sells new equipment and consumables. One of the largest equipment rental companies in North America

Revenue Breakdown

Segment Equip ment Rental 15% Car Rental 85%
Segment
Equip
ment
Rental
15%
Car
Rental
85%
Geography Intl 30% United States 70%
Geography
Intl
30%
United
States
70%

Rental Locations

With the acquisition of Dollar Thrifty, the Company has over 10,000 locations across the United States and 17 other countries

 

U.S.

Intl

Total

Staffed rental locations

3,210

1,215

4,425

Airport

642

304

946

Off-airport

2,568

911

3,479

Non-staffed locations

1,360

150

1,510

Total Corporate

4,570

1,365

5,935

Franchised / Licensee

4,335

Total Locations

10,270

International Countries

Puerto Rico

France

Slovakia

U.S. Virgin Islands

Germany

United Kingdom

Canada

Italy

China

Brazil

Luxembourg

Australia

Belgium

Netherlands

New Zealand

Czech Republic

Spain

Consolidation Improves Industry Competitive Dynamics

Consolidation Improves Industry Competitive Dynamics
Industry Consolidation 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Enterprise Hertz
Industry Consolidation
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Enterprise
Hertz
Avis
Dollar / Thrifty
National / Alamo
Budget
Other
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Focus Shifted to Profitability  Hertz's

Focus Shifted to Profitability

Hertz's acquisition of Dollar Thrifty marks the completion of an industry consolidation that,

over the past ten years, has gone from six

separate rental car companies to only three today

The three remaining players now have incentive to focus on profitability instead of market share

Pricing Environment Already Improving

$65 $55 2011 $45 2012 $35 2013 $25 Jan Feb Mar Apr May Jun Jul
$65
$55
2011
$45
2012
$35
2013
$25
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sept
Oct
Nov
Dec

Market Underestimates Improved Pricing Environment

Market Underestimates Improved Pricing Environment

Overly Conservative Pricing Guidance

Management's revenue and EPS guidance assumes no pricing growth

Sell-side analyst consensus estimates assume a 1% increase in pricing

“On pricing, it's very conservative assumptions where we really don't try to assume any price
“On pricing, it's very conservative assumptions where we
really don't try to assume any price increases in our
models.”
– Hertz CEO in April 2013

Impact of Pricing on Valuation

1% increase in U.S. RPD results in a 6% increase in share price

Sensitivity to U.S. RPD Growth Y/Y

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

2014e EBITDA $2,610 $2,734 $2,859 $2,985 $3,112 $3,239

2014e EPS

$2.44

$2.62

$2.79

$2.96 $3.14 $3.31

Price Target PT % Increase

$30.80

$32.88

$34.97

$37.08

$39.20

$41.34

6.8%

6.4%

6.0%

5.7%

5.4%

Strong Pricing Environment w/ Price Signaling

“One of the headlines I'd like to make is we don't want to gain share
“One of the headlines I'd like to make is we don't want to
gain share by reducing price. We want to gain share by
increasing value, and that's how we're doing it.”
– Hertz CEO in April 2013
“We're seeing our competitors move for profitability, rather than share, and that has a positive
“We're seeing our competitors move for profitability, rather
than share, and that has a positive impact on all of us.”
– Avis CFO in February 2013
“We've been very aggressive in initiating price increases over the last 4 months or so
“We've been very aggressive in initiating price increases
over the last 4 months or so and I think that's had a
positive impact. And we've seen a fairly good matching of
increases by both Hertz and the Enterprise.”
– Avis CFO in March 2013
“ We made a strategic decision to minimize our participation with less profitable commercial accounts.”
“ We made a strategic decision to minimize our
participation with less profitable commercial accounts.”
– Hertz CEO in February 2013

Misunderstood Impact of Used Car Prices

Misunderstood Impact of Used Car Prices

Manheim Used Car Value Index

Jan-12

May-12

Mar-12

Aug-12

Sep-12

Apr-12

Feb-12

Jul-12

Jun-12

Feb-11

Aug-11

May-11

Sep-11

Apr-11

Jul-11

Oct-11

Nov-11

Jan-11

Dec-11

Mar-11

Jun-11

Hertz Does Not Track Manheim Index

Non-Program Car Purchases Reduce Fleet Costs

145

140

135

130

125

120

115

110

105

Reduce Fleet Costs 145 140 135 130 125 120 115 110 105 Manheim Index Hertz Residual

Manheim Index

Costs 145 140 135 130 125 120 115 110 105 Manheim Index Hertz Residual Values +10%

Hertz Residual Values

+10% -3%
+10%
-3%

Sharp Decline in Program Car Purchases: Since 2006, the percentage of program cars purchased fell from 61% to just 19% today. Program cars are repurchased by car manufacturers for a specific price

Save 1% on auto purchase price

Allow for more profitable resale channels

Significant Shift Away from Auctions: Since 2009, auction sales fell from 88% of non-program car sales to just 33% today

Only Halfway Through this Successful Transition:

Depreciation per month should be flat (even if used car prices fall) as fewer program cars are purchased and

more profitable channels are utilized

be flat (even if used car prices fall) as fewer program cars are purchased and more
be flat (even if used car prices fall) as fewer program cars are purchased and more

Strong Growth Opportunities in U.S.

Strong Growth Opportunities in U.S.

Off-Airport Locations 14% yoy Growth

12% share in a three-player market: Since 2006, Hertz has increased its off-airport locations by more than 60% and expects a 9.6% increase in 2013. It has a significant opportunity to capture more share from the

insurance replacement market

Significant opportunity to expand Dollar Thrifty to off-airport locations

24/7 Video Kiosks Increase Efficiency

Expands Hours to 24/7: Self-serve kiosks allows 24/7 rentals, which increases fleet utilization in a cost-effective manner

Allows for Rapid Expansion of Off-Airport Network:

Asset-light model will increase returns on capital. Kiosks

make it significantly easier to move into body shops, auto dealerships, and hotels

Significantly Reduces Labor Costs: Live agents maintain a high-quality, personal experience for customers in a cost-effective manner

Value Segment 25% yoy Growth

Dollar Thrifty will capitalize on value trend: The value segment is the fastest growing on-airport rental car market with over 25% growth in 2012. We expect the Dollar Thrifty brands to continue double-digit growth in 2013-

2014

Hourly Rentals 30% yoy growth

Hertz On Demand (hourly rentals) will expand to 3,500 locations by Q3 2013: We expect little to no cannibalization from the continued expansion of this business

All of Hertz's ~500,000 U.S. vehicles will have On Demand technology by the end of FY2014

Significant Synergies from Dollar Thrifty Acquisition

Significant Synergies from Dollar Thrifty Acquisition

Revenue Synergies ~$300 million

Leverage Global Partners: Hertz's travel partners such as airlines, hotels, and AAA currently represent 30% of Hertz revenue. These partners have strong interest in adding the Dollar Thrifty brands. Lufthansa and AAA have already started to offer all three brands

Europe Corporate Expansion: Dollar Thrifty currently has no corporate locations in Europe. Hertz is adding Dollar Thrifty to its European locations

Expand Off Airport: Hertz is adding the Dollar Thrifty brands to the majority of its off-airport locations

Revenue Synergies $300M Other, 6% Expand Off Leverage Airport, 17% Global Partners, 40% Europe Corporate
Revenue Synergies $300M
Other, 6%
Expand Off
Leverage
Airport, 17%
Global
Partners, 40%
Europe
Corporate
Expansion,
37%

Cost Synergies ~$300 million

Fleet: With the combined company, Hertz will see savings from more efficient buying, selling, and optimizing vehicle usage during ownership

IT: Savings driven by the roll-out of advanced technology to Dollar Thrifty

Procurement: The combined company will see savings from more efficient non-fleet purchasing

Financing, Other: DTG’s blended fleet interest rate is 4.9% while Hertz's is 4.0%. The combined company will be able to command lower financing rates

Cost Synergies $300M Financing, Other, 14% Procurement, Fleet, 40% 15% IT, 31%
Cost Synergies $300M
Financing,
Other, 14%
Procurement,
Fleet, 40%
15%
IT, 31%

HERC Divestiture 20% Incremental Upside

HERC Divestiture – 20% Incremental Upside

HERC operates in an extremely cyclical and fragmented industry, follows an acquisitive growth strategy, and has caused a

chronic drag on Hertz's consolidated ROIC relative to the car rental business

We believe divesting HERC would be most prudent for the company as it would:

Significantly deleverage Hertz's balance sheet and help the company reach investment grade corporate debt rating sooner

Lower interest expense and unlock value by causing an immediate EPS accretion in the range of $0.14-$0.19 plus additional value of $2.90 per share

Allow deployment of FCF towards a share buyback and/or dividend program

Allow Hertz management to focus solely on the core and higher-return car rental business, Dollar Thrifty integration, and new growth areas

Allow HERC management to focus on growing the business organically and through acquisitions

Potential buyers of HERC include United Rentals, Sunbelt Rentals, and private equity firms

Proceeds from Sale of HERC

 

Before Divestiture

Sale

Spinoff

HERC EBITDA (2014e)

$675

After-Tax Proceeds

 

$0

$3,820

$2,836

x EV/EBITDA

6.2x

Long-term debt (2013e)

6,184

2,363

3,348

Pre-tax proceeds

$4,187

Total Debt / EBITDA

2.6x

1.2x

1.7x

Cost Basis

3,140

Interest Expense

 

340

83

117

Gain on Sale

1,047

Blended Cost of Debt

5.5%

3.5%

3.5%

Tax on Gain

366

Fleet Interest

343

300

300

After-Tax Proceeds

$3,820

Fleet Interest Rate

 

4.0%

3.5%

3.5%

 

Decrease in Interest Expense

 

300

266

Proceeds from Monetizing Spin-off

Net Income less income from HERC

87

65

HERC EBITDA (2014e)

$675

EPS

$0.19

$0.14

x Debt / EBITDA

4.2x

Forward P / E

 

12.5x

12.5x

After-tax proceeds

$2,836

Increase in Value per Share from ∆ EPS

$2.35

$1.75

 

Remaining Value to Shareholders

 

1,350

Remaining

Value

per Share

2.90

Total Value to Shareholders

 

$2.35

$4.65

“We've always maintained the position that if there was a reason to divest it that
“We've always maintained
the position that if there
was a reason to divest it
that was shareholder
friendly, we're not resistant
to looking at other things
and other variables in
terms of the equipment
rental business.”
– Hertz CEO in
February 2013

Valuation Analysis

Valuation Analysis

Methodology

Hertz currently trades at 7.4x forward EV/EBITDA versus its pre-crisis average of 8.5x

On a forward P/E basis, Hertz currently trades at 12.5x

This is a significant discount relative to its historical average forward P/E of 14.0x and pre-crisis average of 15.4x

Based on an average of P/E, EV/EBITDA and SOTP analysis, we arrive at a target share price of $36 or +52% upside to

today's share price

Divestiture of HERC would lead to incremental 20% upside

Target Price

($ millions except per share)

Base

Bear

Bull

Street

FY2014 Estimates

   

Car Rental EBITDA

$2,413

$1,828

$2,727

$2,143

Equipment Rental EBITDA

509

432

539

453

Consolidated EBITDA

$2,922

$2,261

$3,266

$2,596

EPS

$2.87

$1.90

$3.39

$2.38

Target Forward Multiples

 

P/E

12.5x

11.0x

13.0x

12.5x

EV/EBITDA

7.4x

6.0x

8.0x

7.4x

SOTP: Car Rental

7.4x

6.0x

8.0x

7.4x

SOTP: Equipment Rental

6.2x

5.0x

6.5x

6.2x

Price per Share

 

P/E x EPS

$35.93

$20.91

$44.06

$29.80

EV/EBITDA x EBITDA

$36.73

$18.87

$46.90

$31.53

SOTP

$35.41

$17.89

$45.16

$30.36

Target Price

$36.00

$19.00

$45.00

$30.56

Upside (Downside)

52%

(20%)

90%

29%

Key Assumptions

   

RPD CAGR (FY'12-'14)

2.5%

(1.0%)

3.5%

0%-1%

Manheim Index CAGR (FY'12-'14)

(3.0%)

(5.0%)

(2.0%) (2%)-(4%)

Chg. in Residual Value due to Channel Mix Shift

$256

$0

$383

$125-$175

Cost Synergies (FY2014)

$250

$150

$300

$300

Strong Management Team & Cash Returns

Strong Management Team & Cash Returns

Key Management

Mark P. Frissora Chairman & CEO

Mark P. Frissora

Chairman & CEO

Elyse Douglas Chief Financial Officer

Elyse Douglas

Chief Financial Officer

Strong management team with laser focus on costs, returns, and customer satisfaction

Sales per employee +6% and operating margin +520bps from 2008 to 2012

Management incentives are aligned with shareholders

Changing incentives: increased weighting of EVA reflects structurally healthier company and industry

Consistently conservative guidance: Frissora has beaten the high end of his guidance every year except 2008

“There was one time when we had a customer complain to corporate. Frissora happened to
“There was one time when we had a customer complain to
corporate. Frissora happened to be in town that week and
showed up here unannounced in jeans and a sweater to
figure out with us a way we could resolve the issue.”
–Manager, Hertz Off-Airport Manhattan Location

Cash Return to Shareholders

Strong FCF generation would allow Hertz to pay down corporate debt and achieve target Net Debt/EBITDA ratio of 1.6x by 2014

Management has repeatedly asserted that Hertz will return cash to shareholders once it meets its target leverage ratio

We expect Net Debt/EBITDA to fall below 1.6x in 2014, which should be followed by significant dividend and/or share repurchase programs

Payout of 35% of FCF as share repurchase could accelerate EPS growth by an incremental +6%

repurchase programs  Payout of 35% of FCF as share repurchase could accelerate EPS growth by

Risks and Mitigants

Risks and Mitigants

A drop in global GDP or enplanements could materially impact Hertz's profitability

Hertz has been profitable through cycles. During phases of weak demand, Hertz sells down its fleet to cut capacity and maintain stable pricing. In 2008 and 2009, Hertz reduced its fleet size by 1% and 10% and earned $237 and $199 (EBT) respectively

We believe that Hertz's shift to off-airport locations, especially the non-cyclical insurance market, mitigates

this risk

Our expectations of a cooperative oligopoly could be incorrect

We believe that there is a high probability that Hertz, Avis, and Enterprise will avoid destructive price wars, especially given the changing incentives and price signaling seen from Hertz

Given Hertz's high financial leverage, rising interest rates may adversely impact profitability and FCF conversion

The option to sell HERC and use the sale proceeds to pay down debt mitigates this risk

Investment Recommendation: Buy Hertz at $23

Investment Recommendation: Buy Hertz at $23

Multiple drivers to realize Hertz's intrinsic value of $36 per share

1 
1

Industry consolidation dramatically improves pricing environment

2 
2

Used car market risk is misunderstood

3 
3

Strong revenue growth opportunities in the U.S. and significant revenue and cost synergies from Dollar Thrifty acquisition

4 
4

Divestiture of Equipment Rental segment would unlock substantial value

Primary Research Source List

Primary Research Source List

Current and Former Employees

Mark Frissora

Elyse Douglas

Scott Sider

Lois Boyd

Tom Callahan

Bob Stuart

Rob Moore

Scott Massengill

Jatindar Kapur Sr.

Cannot disclose

Cannot disclose

Cannot disclose

Cannot disclose

Chairman & CEO

Senior Exec. VP & CFO

President RAC Americas

President Hertz Equipment Rental

President Donlen

Exec. VP Global Sales & Marketing

Sr. VP, IT Services

Sr. VP & Treasurer

VP & Corporate Controller

Tech Initiative Project Manager

Former Sr. Director of Remarketing

Dealer Direct Salesman

Former Hertz Franchisee

Industry Sources

Luke Froeb

Tom Webb

Neil Abrams

Scott White

John Hunt

Former Chief Economist of the FTC

Chief Economist of Manheim

Leading Industry Source for Pricing

Former Head of Bus Dev at Budget

Hunt Ford Chrysler Dealer Principal

** Former Pershing Square Challenge Winner

Current Shareholders

Oscar Schafer

Michael Smeets**

Dan Monaco

Dennis Hong

Steve Bischoff

Rivulet Capital

Fir Tree Partners

Fidelity Investments

Altimeter Capital

40 North Industries

Other Investment Funds

Michael Karsch Anna Baghdasaryan**

Ethan Binder

Danilo Santiago

Jon Luft

Cristiano Amoruso**

Pallav Gupta

Jason Perri

Investment team

Karsch Capital Management

Slate Path Capital

Rational Asset Management

Eagle Capital Partners

Starboard Value

MSD Capital

Apollo Global Management

Roystone Capital

Sell-Side Analysts

David Lim

Wells Fargo

Chris Agnew

MKM Partners

Supplementary Materials 15

Supplementary Materials

Table of Contents

Table of Contents

Appendix A: Thesis

17

Appendix D: Ownership

66

Industry Consolidation

18

Private Equity Ownership

67

Used Car Market

27

Current Shareholder Base

68

Growth Opportunities

38

Dollar Thrifty Acquisition

42

Appendix E: Additional Analysis

69

Equipment Rental Business

44

Industry’s Improved Pricing Sustainable?

70

 

Rental Car Pricing Sources

71

Appendix B: Base Case Financials and Valuation

46

Why Hertz Over Avis?

72

Financial Summary

47

European Car Rental Market

73

EPS Bridge

53

Economic Downturn

74

EBITDA Bridge

54

Debunking Myths About Hertz

75

Model Sensitivities

55

Stock Price History

76

Equity Trading Comps

56

Competitor Overview - Avis

77

Sum-of-the-Parts Valuation

58

Fit with Pershing Square Criteria

78

Unit Economics

59

 

Appendix F: Downside Case Financials

79

Appendix C: Management

61

Key Management Biographies

62

Appendix G: Upside Case Financials

85

Track Record

63

Compensation Incentives

65

Appendix H: Team Member Bios

91

Appendix A: Thesis 17

Appendix A: Thesis

Industry Consolidation Timeline

Industry Consolidation – Timeline
A Series of Acquisitions have Consolidated the Car Rental Market November 2002: March 2009: November
A Series of Acquisitions have Consolidated the Car Rental Market
November 2002:
March 2009:
November 2012:
Avis acquires
Hertz acquires
Hertz acquires
Budget
Advantage
Dollar Thrifty
2002…
…2007
2008
2009
2010
2011
2012
2013
August 2007:
October 2011:
March 2013:
Enterprise acquires
National / Alamo
Avis acquires
Avis acquires
Avis Europe
ZipCar

Industry Consolidation Current Snapshot

Industry Consolidation – Current Snapshot

Today, Three Players Comprise >90% of the U.S. Rental Car Industry

Hertz Corporation

Hertz Corporation
Hertz Corporation
Hertz Corporation

Avis Budget Corp

Avis Budget Corp
Avis Budget Corp
Avis Budget Corp

Enterprise Holdings

Enterprise Holdings
Enterprise Holdings
Enterprise Holdings

U.S. Market Share Over Time

U.S. Market Share Over Time

OtherBudget National / Alamo Dollar / Thrifty Avis Hertz Enterprise

BudgetOther National / Alamo Dollar / Thrifty Avis Hertz Enterprise

National / AlamoOther Budget Dollar / Thrifty Avis Hertz Enterprise

Dollar / ThriftyOther Budget National / Alamo Avis Hertz Enterprise

AvisOther Budget National / Alamo Dollar / Thrifty Hertz Enterprise

HertzOther Budget National / Alamo Dollar / Thrifty Avis Enterprise

EnterpriseOther Budget National / Alamo Dollar / Thrifty Avis Hertz

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1999 2000 2001 2002
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Source: Auto Rental News

U.S. Market Share: On-Airport and Off-Airport

U.S. Market Share: On-Airport and Off-Airport

On-Airport Market in U.S.

Other 2% Avis Budget Hertz 39% 26% Enterprise 33%
Other 2%
Avis
Budget
Hertz 39%
26%
Enterprise
33%

~$12.5 billion market

Off-Airport Market in U.S.

33% ~$12.5 billion market Off-Airport Market in U.S. Other 9% Hertz 12% Avis Budget 10% Enterprise
Other 9% Hertz 12% Avis Budget 10% Enterprise 69% ~$11.0 billion market
Other 9%
Hertz 12%
Avis
Budget
10%
Enterprise
69%
~$11.0 billion market

U.S. Car Rental RPD Hertz

U.S. Car Rental RPD – Hertz

Since Hertz's IPO in late 2006, Hertz's U.S. rental car rates (RPD) have decreased 19 out of the past 24 quarters, including the last nine quarters

Following the close of the Dollar Thrifty acquisition in November 2012, Hertz's management noted that U.S. pricing improved during the latter portion of the fourth quarter, culminating in December airport RPD increasing 1.6% and January airport RPD increasing 6.0%

RPD increasing 1.6% and January airport RPD increasing 6.0% 8% Hertz U.S. RPD Growth (y/y) 6%
8% Hertz U.S. RPD Growth (y/y) 6% 4% 2% 0% (2%) (4%) (6%) (8%) Hertz
8%
Hertz U.S. RPD Growth (y/y)
6%
4%
2%
0%
(2%)
(4%)
(6%)
(8%)
Hertz has seen pricing improve since the Dollar Thrifty acquisition
RPD Growth (y/y)

U.S. Car Rental RPD Avis

U.S. Car Rental RPD – Avis

Since Q1 2007, Avis' U.S. rental car rates (RPD) have decreased 17 out of the past 24 quarters, including the last 11 quarters

Following the close of the Dollar Thrifty acquisition in November 2012, Avis' management noted that U.S. pricing improved in December, January, February and March

Avis U.S. RPD Growth (y/y) 10% 8% 6% 4% 2% 0% (2%) (4%) RPD Growth
Avis U.S. RPD Growth (y/y)
10%
8%
6%
4%
2%
0%
(2%)
(4%)
RPD Growth (y/y)

Avis has seen pricing improve since the Dollar Thrifty acquisition

Post-Consolidation Pricing Environment

Post-Consolidation Pricing Environment

With respect to pricing, we are seeing a pretty healthy environment toward the end of the fourth quarter and into

the first quarter. And I think there are a few things that are

probably driving it. The first is that we've redoubled our own efforts to push for pricing wherever we can. And I think those are having an impact. I think we have an industry that is generally right-fleeted. And then on top of that, I think we're seeing our competitors move for profitability, rather than share or other potential objectives, and that has a

positive impact on all of us.

- Avis CFO in March 2013

Unprecedented RAC pricing is converting skeptics to believers. U.S. RAC pricing turned positive just after HTZ-

DTG, fuelling the bull case for a new era of pricing power

(top 3 players control 98% of U.S. on-airport). U.S. pricing

was +5% in Jan and also strong in Feb/Mar. Avis initiated another price increase effective for Apr 8, which was quickly followed by Enterprise. - Morgan Stanley in March 2013

We made a strategic decision to minimize our participation with less profitable commercial accounts. In January

commercial revenue per day was actually positive compared

with the prior year.

Hertz CEO in February 2013

One of the headlines I'd like to make is we don't want to gain share by reducing price. We want to gain share by increasing value, and that's how we're doing it. Hertz CEO in April 2013

We've been very aggressive in initiating price increases over the last 4 months or so (post the Dollar Thrifty acquisition), and I think that's had a positive impact. What we watch for is the extent to which our competitors react to that with increases. And we've seen a fairly good matching of increases by both Hertz and the Enterprise. Avis CFO in March 2013

Post-Consolidation Pricing Environment (cont.)

Post-Consolidation Pricing Environment (cont.)

The real issue becomes whether anyone is taking a very different view on pricing and not moving pricing up when

the rest of the industry is, because that clearly can have an

impact. I think in an environment where there are three competitors rather than four, there's obviously a little bit less risk of that happening.

- Avis CFO in March 2013

Enterprise says rates at some of the top 200 airports their brands serve were up to 4% higher in February than

during that month last year.

- USA Today, February 2013

In (car rental) markets with four brands, each separately

owned, the merger of two brand-owners increases average

prices 4%.

- Former Chief Economist of the FTC

Average Pricing of Six Major Airports, May 2011 to February 2013

$65 $55 2011 $45 2012 2013 $35 $25 Jan Feb Mar Apr May Jun Jul
$65
$55
2011
$45
2012
2013
$35
$25
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sept
Oct
Nov
Dec

Source: Rate-Highway

Structural Shift in Rental Car Pricing Environment

Structural Shift in Rental Car Pricing Environment

Historically, the major auto manufacturers (GM, Chrysler, Ford) overproduced cars and used the rental car market as a means to unload excess production

This resulted in consistent over-fleeting and under-utilization in the car rental market

In order to increase utilization, car rental companies were incentivized to lower prices, ultimately

resulting in a highly competitive pricing environment marked by low returns

As a result of the major restructurings of GM, Chrysler, and Ford, auto manufacturers have become much more rational with their production

This has significantly mitigated over-fleeting in the car rental market and increased utilization

Car rental utilization rates across the industry are at their all-time high

High utilization dis-incentivizes car rental companies from competing on price

Renewed focus on returns and profitability

Restructuring in the Auto Manufacturing Industry marks a

Structural Shift in Rental Car Pricing Environment

Used Car Market Analysis

Used Car Market Analysis

Manheim Used Car Value Index is within 5% of All-Time High

130 125 120 115 110 105 100 95 90 Manheim Used Car Value Index Jan-05
130
125
120
115
110
105
100
95
90
Manheim Used Car Value Index
Jan-05
Apr-05
Jul-05
Oct-05
Jan-06
Apr-06
Jul-06
Oct-06
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
Apr-09
Jul-09
Oct-09
Jan-10
Apr-10
Jul-10
Oct-10
Jan-11
Apr-11
Jul-11
Oct-11
Jan-12
Apr-12
Jul-12
Oct-12
Jan-13

Used car prices must fall by 5.7% to return to pre-crisis levels

Used Car Market Analysis (cont.)

Used Car Market Analysis (cont.)

Competing supply of off-lease vehicles expected to significantly rise in 2013-2014

Off-lease volumes are set to increase 55% by 2014. Off-lease vehicles directly compete with Hertz's supply of used cars, which put downward pressure on residuals

Ford, GM, and Chrysler drastically reduced vehicle

leases during the financial crisis. Off-lease volumes today, which lag lease originations by 33 months, are close to an all-time low. We expect them to increase 6% in 2013 and 27% in 2014

By 2014, we expect an increase of 550,000 off-lease

vehicles, which represents 42% of 2012 car rental

sales

Despite the significant increase, we expect off-lease volume in 2014 to be less than that in 2008

Supply Increase is Around the Corner

less than that in 2008 Supply Increase is Around the Corner Off-Lease Volume New Lease Originations

Off-Lease Volume

2008 Supply Increase is Around the Corner Off-Lease Volume New Lease Originations 3.0 2.5 2.0 1.5

New Lease Originations

3.0 2.5 2.0 1.5 1.0 Competing Supply 0.5 +55% 0.0 Cars (in millions)
3.0
2.5
2.0
1.5
1.0
Competing
Supply
0.5
+55%
0.0
Cars (in millions)

'05

'06

'07

'08

'09

'10

'11

'12

'13E

'14E

Supply is definitely going to increase. The off-retail lease volume is a competitive impact.Tom Webb, Manheim's Chief Economist

The widely expected supply increase is around the corner

Used Car Market Analysis (cont.)

Used Car Market Analysis (cont.)

Upcoming Increase in Supply It's Different This Time

Healthier OEMS = Healthier Residuals

Restructured OEMs have abandoned destructive practices

Rationalized capacity at Big 3 automakers means that practices that destroyed residual values will be gone: big incentives, high dealer inventories, excessive lease subsidies, and short rental cycles

Rental car companies now have rational relationships with OEMs

The shift to a risk model means that OEM excess capacity is no longer pushed through to rental car companies, which leads to a more rational supply and protects residual values

Shift to Online Purchases = Healthier Residuals

Online buying makes retail and direct-to-dealer channels much easier to operate and more likely to succeed

Rapid changes in technology has changed the way

dealers and individuals buy cars

58% of used car buyers say the Internet was the most influential element in their vehicle search

Online buying transforms local markets to national markets

Fewer national used car market inefficiencies leads to structurally higher residual values

The average distance between buyers and sellers is 190 miles for local auction purchases vs. 439 miles for online purchases

We are in a new era of structurally higher used car residual values

Used Car Market Analysis (cont.)

Used Car Market Analysis (cont.)

If Prices Fall, Hertz has Many Levers to Pull

Increase Direct-to-Dealer Mix

Hertz can increase its Dealer Direct mix to mitigate falling prices

Increasing the Dealer Direct channel by 10% decreases depreciation/unit/month by 1.1%

Increase Holding Period in a Downside Scenario

Hertz can increase its rental holding period to mitigate falling prices

Increasing average fleet holding period by three

months decreases depreciation/unit/month by 0.6%

Increase Retail Mix

Hertz can increase its Retail/Rent2Buy mix to mitigate falling prices

Increasing the Retail/Rent2Buy channel by 10% decreases depreciation/unit/month by 3.1%

Increase Prices in a Downside Scenario

Falling residuals affect all rental car companies

In the past, pricing has increased after significant declines in used car residual values (72% R-squared)

Hertz has many ways to mitigate declines in used car prices

Used Car Market Analysis (cont.)

Used Car Market Analysis (cont.)

Jan-12

Mar-12

Aug-12

Apr-12

Jul-12

Sep-12

Feb-12

May-12

Jun-12

Jan-11

Mar-11

Nov-11

Aug-11

Dec-11

Jul-11

Apr-11

Sep-11

Feb-11

Oct-11

May-11

Jun-11

Hertz has significantly outperformed the Manheim Index since Jan 2011

significantly outperformed the Manheim Index since Jan 2011 Manheim Index Hertz Residual Values 145 140 +10%

Manheim Index

outperformed the Manheim Index since Jan 2011 Manheim Index Hertz Residual Values 145 140 +10% 135

Hertz Residual Values

145 140 +10% 135 130 125 120 -3% 115 110 105 Manheim Used Car Value
145
140
+10%
135
130
125
120
-3%
115
110
105
Manheim Used Car Value Index

While people are forecasting this headwind from a drop in the Manheim Index, we are not experiencing it. It's due to the shift in channels, where we're selling the cars and how we're

selling them, and that's improving our fleet

costs.

Is [lower depreciation] sustainable? We believe it is sustainable in our business model. We believe that used cars are probably the most liquid currency out there, and that if you look at over the last 40 years used cars have always

held their value. I mean, after 9/11 they

bounced back in four months. After 2008, 2009 they bounced back in six months to higher levels than they were before.

We feel really good about fleet costs continuing to go down, based on only being about 50% of the way deployed on the car

channel shift.

-- CEO Mark Frissora

Hertz's remarketing strategy is working

Remarketing Channel Mix Overview

Remarketing Channel Mix – Overview

% of Fleet Sold through Auction

100% 88% 75% 80% 65% 60% 33% 40% 23% 13% 13% 20% 0% 2009 2010
100%
88%
75%
80%
65%
60%
33%
40%
23%
13%
13%
20%
0%
2009
2010
2011
2012
2013E
2014E
2015E
% of Fleet Sold through Dealer Direct
100%
80%
60%
47%
47%
48%
48%
40%
19%
11%
20%
0%
0%

2009 2010

2011

2012

2013E

2014E

2015E

% of Fleet Sold through Retail/Rent2Buy

100% 80% 60% 33% 33% 40% 23% 13% 20% 7% 8% 9% 0% 2009 2010
100%
80%
60%
33%
33%
40%
23%
13%
20%
7%
8%
9%
0%
2009
2010
2011
2012
2013E
2014E
2015E
% of Fleet Sold through Other Channels
100%
80%
60%
40%
20%
5%
6%
7%
7%
7%
7%
7%
0%

2009 2010

2011

2012

2013E

2014E

2015E

The shift away from auctions into more profitable resale

channels mitigates the expected drop in used car prices

Remarketing Channel Mix Overview (cont.)

Remarketing Channel Mix – Overview (cont.)

Dealer Direct - $500 Premium over Auction

$1,400

$1,200

$1,000

$800

$600

$400

$200

$0

$160 $75 $75 $90 $100
$160
$75
$75
$90
$100

Premium Over Auction - Dealer

Direct

Extra Interest and$75 $75 $90 $100 Premium Over Auction - Dealer Direct Depreciation Price Differential Transportation to Auction

Depreciation

Price DifferentialOver Auction - Dealer Direct Extra Interest and Depreciation Transportation to Auction Auction Reconditioning Fees

Transportation to- Dealer Direct Extra Interest and Depreciation Price Differential Auction Auction Reconditioning Fees Auction Sales Fee

Auction

AuctionDirect Extra Interest and Depreciation Price Differential Transportation to Auction Reconditioning Fees Auction Sales Fee

Reconditioning Fees

Auction Sales Fee- Dealer Direct Extra Interest and Depreciation Price Differential Transportation to Auction Auction Reconditioning Fees

Retail/Rent2Buy - $1,300 Premium over Auction

$1,400

$1,200

$1,000

$800

$600

$400

$200

$0

$1,035 $75 $90 $100
$1,035
$75
$90
$100

Premium Over Auction -

Retail/Rent2Buy

Price Differential$75 $90 $100 Premium Over Auction - Retail/Rent2Buy Transportation to Auction Auction Reconditioning Fees

Transportation to$90 $100 Premium Over Auction - Retail/Rent2Buy Price Differential Auction Auction Reconditioning Fees Auction Sales Fee

Auction

AuctionPremium Over Auction - Retail/Rent2Buy Price Differential Transportation to Auction Reconditioning Fees Auction Sales Fee

Reconditioning Fees

Auction Sales Fee$90 $100 Premium Over Auction - Retail/Rent2Buy Price Differential Transportation to Auction Auction Reconditioning Fees

Retail/Rent2Buy and Dealer Direct offer

significant premiums over the auction channel

Remarketing Channel Overview Retail/Rent2Buy

Remarketing Channel Overview – Retail/Rent2Buy

1. Retail Sales Cut Out the Middleman

Hertz cuts out the cost of the auction for the buyer and seller, which enables it to charge the lowest retail prices

Average retail price is 20% below Blue Book Value

3. Retail Sales Growth Obscured by Accounting

With the steady supply of used cars and an attractive value proposition to retail customers, we believe Rent2Buy will ultimately become an effective competitor to CarMax

Retail stores have grown from nine in 2011 to over 30 today

Continued growth in retail sales is only reflected in a lower depreciation cost, a much less visible metric than sales growth

2. Innovative Sales Process Provides Advantage

Instead of 30-minute test drives, Hertz offers refundable 3-day test drives, which customers love and traditional car dealerships cannot offer

Prices are non-negotiable (no-haggle price)

4. Strong Reviews from Customers

Better price, recent model years, the ability to 'try before you buy,' hassle-free buying, a warranty, and buying the cream of the crop

The prices are VERY good

We expect the shift to retail/Rent2Buy to continue to offset the decline in residuals

Remarketing Channel Overview Dealer Direct

Remarketing Channel Overview – Dealer Direct

Hertz has significantly built up its Direct-to-Dealer sales infrastructure

Direct-to-Dealer sales force increased from 15 in 2011 to over 120 today

Dealer Direct increases fleet utilization by advertising active rentals

Attractive value proposition for dealers

$45 buyer fee compared to $300-$500 from Manheim, the largest used car auction

No change in dealer behavior required. Enterprise has a long history of selling direct to dealers

Strong growth despite relatively infant infrastructure

This channel didn't exist in 2009, but now represents

40% of remarketing. The channel more than doubled

from 2011-2012

Only 6% of vehicles have condition reports and pictures

Vehicles with condition reports and pictures are eight times more likely to sell, according to Manheim

Management has indicated that most Dealer Direct

vehicles will have electronic condition reports by

2014

vehicles will have electronic condition reports by 2014 We expect the shift to Dealer Direct sales
vehicles will have electronic condition reports by 2014 We expect the shift to Dealer Direct sales
vehicles will have electronic condition reports by 2014 We expect the shift to Dealer Direct sales

We expect the shift to Dealer Direct sales to increase utilization and decrease fleet cost

Capitalization Costs

Capitalization Costs

Hertz has moved to a significantly more diverse fleet

Reduced reliance on Ford and GM:

Since the spin-off from Ford in 2005, Hertz has reduced its reliance on Ford and General Motors from 57% of purchases to just 38% today

More suppliers = more bargaining power

Shift from program cars saves 1% on capitalization costs

Consolidation concentrates vehicle purchasing and increases buyer power

Deep analytics on trim packages minimizes depreciation/unit/month

New software packages ensure that vehicles have the trim packages that balance customer satisfaction, capitalization costs, and residual values

This analysis significantly reduced purchases of exotic

trim packages on cars for leisure customers

Hertz is Less Reliant on Ford and GM

% of Vehicles Purchased by Manufacturer 100% 33% 80% Others 43% 60% Nissan 16% 17%
% of Vehicles Purchased by Manufacturer
100%
33%
80%
Others
43%
60%
Nissan
16%
17%
13%
Toyota
40%
25%
General Motors
20%
40%
13%
Ford
0%
2006
2012

Consolidation Increases Purchasing Scale

700,000 600,000 500,000 400,000 300,000 200,000 100,000 - Avg # of Cars
700,000
600,000
500,000
400,000
300,000
200,000
100,000
-
Avg # of Cars

2010

2011

2012

Donlen300,000 200,000 100,000 - Avg # of Cars 2010 2011 2012 International (Hertz and Dollar Thrifty)

International (Hertz300,000 200,000 100,000 - Avg # of Cars 2010 2011 2012 Donlen and Dollar Thrifty) Domestic

and Dollar Thrifty)

Domestic (Hertz and300,000 200,000 100,000 - Avg # of Cars 2010 2011 2012 Donlen International (Hertz and Dollar

Dollar Thrifty)

Fleet Efficiency

Fleet Efficiency

Increases in fleet efficiency can significantly reduce costs

Fleet efficiency explains 86% of the variation in DOE + SGA margin

Three main factors are leading to increased utilization

Synergies from Dollar Thrifty opposite demand schedules means that Hertz's excess supply of weekend cars get used at Dollar Thrifty

Technological Changes kiosks, Hertz On Demand, and mobile apps, reduce the need for staffed locations and expand hours to 24/7

The Shift to the Dealer Direct Remarketing Channel reduces the time cars spend grounded by up to 16 days, which saves approximately $10 per day in depreciation and interest expense

We expect these factors to increase utilization by 130bps to 80.5% by 2015

Fleet Efficiency is Improving

81.0%

80.0%

79.0%

78.0%

77.0%

76.0%

75.0%

80.0% 80.3% 80.5%

79.3% 78.5% 78.3% 78.6% 77.9% 77.1%
79.3%
78.5% 78.3% 78.6%
77.9%
77.1%

'07

'08

'09

'10

'11

'12

'13E

'14E

'15E

Improved Fleet Efficiency Reduces Costs

R² = 86% 78.0% 76.0% 74.0% 72.0% 70.0% DOE + SG&A margin
R² = 86%
78.0%
76.0%
74.0%
72.0%
70.0%
DOE + SG&A margin

77.5%

78.0%

78.5%

79.0%

79.5%

80.0%

U.S. RAC Fleet Efficiency

80.5%

Growth Initiative U.S. Off-Airport Market

Growth Initiative – U.S. Off-Airport Market

12% share in $11bn off-airport market = significant growth opportunity

While off-airport revenue per day is lower than that in airport markets, rental periods are longer, leading to higher utilization and lower costs

The insurance replacement market is particularly attractive, with long rental periods and stable revenues and profits, even in economic downturns

Changes in technology (Hertz On Demand, kiosks) reduce the up-front investment costs, making this market expansion particularly attractive

We expect off-airport locations to grow by >10% per year through 2015

Off-Airport vs. On-Airport Cost Differentials

 

Off-Airport Location

On-Airport Location

Difference

Labor Costs

$4.09

$4.47

9% lower

DOE

$18.54

$28.00

34% lower

SG&A

$1.63

$3.12

48% lower

Utilization

80.3%

78.3%

2% higher

Source: Hertz investor presentation

Growth is Accelerating

3,000

2,500

2,000

1,500

1,000

Off-Airport Locations

2009-2012: +14.0% CAGR 2004-2008: +5.5% CAGR
2009-2012:
+14.0% CAGR
2004-2008:
+5.5% CAGR

2005

2006

2007

2008

2009

2010

2011

2012

Off-Airport Revenue Mix

19% 43% 38%
19%
43%
38%

Retail19% 43% 38% Replacement Business

Replacement19% 43% 38% Retail Business

Business19% 43% 38% Retail Replacement

Growth Initiative ExpressRent Kiosks / iPhone App

Growth Initiative – ExpressRent Kiosks / iPhone App

A parking space is the only requirement

Hertz can use technology to leapfrog Enterprise on off- airport markets

Opens up body shops, car dealerships, and hotels to Hertz rental cars. Requires a modest $6000 kiosk

investment

Increasing consumer preference towards mobile applications reduces costs

70% of Hertz On Demand customers used mobile apps

Mobile check-in increases labor productivity and customer satisfaction

How it works

iPhone App: Text message after plane lands notifies customer where their car is located. Eliminates the need to stop by the counter

24/7 kiosk: Videophone connects to agent in

Oklahoma, City who guides customer through the

process. Customer scans driver's license at kiosk

ExpressRent Kiosk

scans driver's license at kiosk ExpressRent Kiosk iPhone App “Investors underestimate the impact of these

iPhone App

driver's license at kiosk ExpressRent Kiosk iPhone App “Investors underestimate the impact of these volume-
“Investors underestimate the impact of these volume- enhancing product and service improvements.” – Buyside
“Investors underestimate the impact of these volume-
enhancing product and service improvements.”
– Buyside Investment Analyst

Growth Initiative Hertz On Demand (Hourly Rentals)

Growth Initiative – Hertz On Demand (Hourly Rentals)

Significant Advantages Over ZipCar

Scale: approximately 500,000 U.S. rental cars by 2014 vs. 9,700 for ZipCar

No membership required and free to join, compared to Zipcar's $25 application fee and $60/year

Second-mover advantage

Cheaper and better technology

Does not have to educate the public about car sharing

Increases Fleet Utilization

Car-sharing customers and traditional rent-a-car

customers do not overlap

24/7, short-term car sharing minimizes idle time

Reduces Costs

On Demand technology is completely self-serve

Hertz On Demand is Self Serve

minimizes idle time  Reduces Costs  On Demand technology is completely self-serve Hertz On Demand
minimizes idle time  Reduces Costs  On Demand technology is completely self-serve Hertz On Demand

Growth Initiative Donlen Fleet Management

Growth Initiative – Donlen Fleet Management

Donlen gives Hertz an end-to-end solution for its customers. No other rental car company offers this solution

Significant revenue synergies continue to be realized

E.g. Hertz Value Lease expands Donlen's product

offering to large companies by leveraging Hertz's

rental car network

Revenue growth is accelerating. We expect 2012 revenues of ~$460 million to grow by 16% to $534 million

Donlen's expertise in remarketing is an underappreciated asset

Our primary research discovered that Donlen has significant expertise in sourcing and remarketing that will be a substantial benefit to Hertz as it continues to move away from program cars

Donlen Fleet Management Solutions

away from program cars Donlen Fleet Management Solutions “ Donlen is the best remarketer I've ever

Donlen is the best remarketer I've ever seen.

Former Hertz Licensee

Our Donlen acquisition has turned out to be a much better acquisition

than we anticipated. The revenue

synergies that we're getting out of

this acquisition are large.CEO Mark Frissora

Dollar Thrifty Acquisition Terms

Dollar Thrifty Acquisition Terms

Hertz completed its acquisition of Dollar Thrifty in November 2012

Purchase Price

Deal Structure

Transaction Benefits

$87.50 per share purchase price

Equity Value of $2.6 billion

Corporate Enterprise Value of $2.3 billion

2012E EV/Corp EBITDA multiple of 7.8x (based on mid-point of DTG

2012E Corp. EBITDA guidance of $285 million to $310 million )

100% cash consideration

Antitrust clearance required Hertz to divest its Advantage brand

Advantage divestiture (~$30 million of Corp. EBITDA)

Highly attractive transaction for HTZ owners EPS accretion & positive EVA

Including impact of Advantage divestiture (~$30 million of Corp. EBITDA)

Estimated $600 million in synergies

Acquisition multiple of 2.6x EV/EBITDA (including synergies)

Synergies from Dollar Thrifty Acquisition

Synergies from Dollar Thrifty Acquisition

Hertz operated primarily in the premium segment of the car rental market

The Dollar Thrifty acquisition gives them a leading brand in the faster growing mid-tier and value market or the leisuresegment

Revenue synergies of $300M per year and cost synergies of $300M per year. Revenue synergies have incremental margins of 20-30%

By 2015, these synergies would contribute $0.57 in incremental EPS. $1.5B NPV of incremental operating profits

 By 2015, these synergies would contribute $0.57 in incremental EPS. $1.5B NPV of incremental operating

Equipment Rental (HERC) Business Overview

Equipment Rental (HERC) Business Overview

Business

HERC offers a broad range of equipment for rental in the U.S., Canada, France, Spain, China and Saudi Arabia. Ancillary to its rental business, it is also a dealer of certain brands of new equipment in the U.S. and Canada

Customers range from local contractors to large industrial plants. As of

December 31, 2012, no customer accounted for more than 1.5% of HERC’s

global sales

HERC revenues and margins are cyclical due to high exposure to the construction and industrial markets

U.S. represents approximately 70% of worldwide revenues

Fleet

HERC acquires its equipment from a variety of manufacturers. The equipment is typically new at the time of purchase and is not subject to any repurchase program

The per-unit acquisition cost of rental equipment varies from over $200,000 to under $100. As of December 31, 2012, the average per-unit acquisition cost (excluding small equipment purchased for less than $5,000 per unit) for rental fleet was approximately $38,000

Average age of worldwide rental fleet is 43 months

HERC Revenue Mix by Markets

 Average age of worldwide rental fleet is 43 months HERC Revenue Mix by Markets HERC

HERC Fleet by Equipment Type

 Average age of worldwide rental fleet is 43 months HERC Revenue Mix by Markets HERC

Equipment Rental Divestiture to Unlock Value

Equipment Rental Divestiture to Unlock Value

HERC operates in an extremely fragmented industry, with the top 10 North America rental companies making up only 30% of revenue

United Rentals (NYSE:URI) is the market leader with 13% share

Sunbelt Rentals (LSE:AHT) is 2 nd with 5% market share

HERC is 3 rd with 4% market share

Management has previously discussed the possibility of divesting HERC

Potential buyers include United Rentals, Sunbelt Rentals, and private equity firms

We spoke with an analyst who asked the CEO if he foresees any FTC issues with regards to an acquisition of HERC by United Rentals or Sunbelt Rentals. He replied that has already looked into it and there would

not be any issues

We believe a monetizing spinoff would maximize shareholder value. Hertz should:

Issue debt at HERC level, transfer the proceeds of debt issuance to parent (Hertz Global Holdings), and then spin-off HERC

Sell HERC after six months to qualify for tax-free treatment under IRS

Section 355(e) “Safe Harbor” rule

An outright sale of HERC could also be pursued based on the cost-basis (undisclosed) of HERC’s historical acquisitions

United Rentals 13% Sunbelt 5% HERC 4% Other 78%
United
Rentals
13%
Sunbelt
5%
HERC
4%
Other
78%
“We've always maintained the position that if there was a reason to divest it that
“We've always maintained the
position that if there was a reason
to divest it that was shareholder
friendly, we're not resistant to
looking at other things and other
variables in terms of the equipment
rental business.”
– Hertz CEO in February 2013
Appendix B: Base Case Financials and Valuation 46

Appendix B: Base Case Financials and Valuation

Model Summary Base Case

($ in millions, except per share data)

Fiscal Year Ending December

   

2008

2009

2010

2011

2012

2013e

2014e

2015e

2016e

2017e

 

Income Statement Metrics

$11,163

$11,952

$12,670

$13,055

$13,465

23.8%

7.1%

6.0%

3.0%

3.1%

26.7%

7.1%

6.1%

3.1%

3.2%

7.6%

6.6%

5.6%

2.8%

2.8%

2,420

2,922

3,258

3,407

3,568

21.7%

24.4%

25.7%

26.1%

26.5%

386

365

336

308

253

1,571

2,062

2,398

2,561

2,761

14.1%

17.3%

18.9%

19.6%

20.5%

19.2%

22.3%

23.6%

24.0%

24.4%

16.3%

17.7%

18.8%

19.4%

20.0%

550

722

839

896

966

1,021

1,341

1,559

1,665

1,795

$2.20

$2.87

$3.33

$3.53

$3.79

68.4%

30.6%

15.7%

6.2%

7.3%

4,355

2,804

1,044

(898)

(3,011)

1.68x

1.15x

0.80x

0.53x

0.30x

1.80x

0.96x

0.32x

(0.26x)

(0.84x)

27.7%

27.0%

24.2%

20.8%

18.5%

12.9%

14.8%

15.3%

15.2%

15.5%

5.3%

6.3%

6.9%

7.1%

7.4%

3,714

4,359

4,762

5,003

5,235

2,629

2,808

3,001

3,061

3,122

1,085

1,551

1,761

1,942

2,113

Income Statement Base Case

($ in millions, except per share data)

Fiscal Year Ending December

 
 

2008

2009

2010

2011

2012

2013e

2014e

2015e

2016e

2017e

Net Sales

$8,525

$7,102

$7,563

$8,298

$9,021

$11,163

$11,952

$12,670

$13,055

$13,465

 

Bloomberg Consensus:

$10,911

$11,695

$12,548

Expenses:

 

Direct Operating

4,930

4,084

4,283

4,566

4,796

5,464

5,651

5,882

6,004

6,132

Deprec. of revenue earning equip, leases

2,194

1,931

1,868

1,906

2,148

2,640

2,808

2,979

3,082

3,191

SG&A

769

641

665

745

946

1,309

1,491

1,615

1,655

1,697

Interest Expense

870

680

773

700

650

710

683

649

614

551

Interest Income

25

65

12

6

5

6

6

7

7

7

Impairments, Others

1,169

0

0

63

36

0

0

0

0

0

Total Expense

9,907

7,272

7,577

7,974

8,570

9,816

10,126

10,519

10,747

10,964

GAAP Pre-Tax Income

(1,382)

(171)

(15)

324

451

1,348

1,826

2,151

2,307

2,501

Adjustments for non-cash and non-recurring items:

   

Purchase Accounting

101

90

90

88

110

129

138

146

150

155

Non-Cash Debt Charges

100

172

183

130

84

94

98

101

103

105

Other charges

1,419

108

89

138

258

0

0

0

0

0

(Restructuring Charges, Derivative Loss, Pension Adjustment, Acquisition Charges, Other)

 

Total Adjustments

1,620

370

362

356

451

224

236

247

254

260

Adjusted Pre-Tax Income

238

199

347

681

901

1,571

2,062

2,398

2,561

2,761

Cash Tax

83

70

121

238

315

550

722

839

896

966

Less: Noncontrolling interest

21

15

17

20

0

0

0

0

0

0

Net Income to Hertz

134

115

208

423

586

1,021

1,341

1,559

1,665

1,795

Diluted EPS

$0.41

$0.31

$0.51

$0.95

$1.31

$2.20

$2.87

$3.33

$3.53

$3.79

 

Bloomberg Consensus:

$1.90

$2.38

$2.68

Fully Diluted Share

323

372

412

445

448

464

466

469

471

473

EBITDA Reconciliation Base Case

($ in millions, except per share data)

Fiscal Year Ending December

   

2008

2009

2010

2011

2012

2013e

2014e

2015e

2016e

2017e

 

Car Rental Segment:

1,733

2,172

2,452

2,571

2,701

2,509

2,669

2,834

2,932

3,038

298

292

286

279

271

0

0

0

0

0

4,539

5,133

5,572

5,783

6,010

285

280

275

268

261

2,347

2,495

2,650

2,743

2,842

51

54

58

59

61

0

0

0

0

0

1,958

2,413

2,705

2,831

2,968

190

225

256

274

292

380

405

428

440

453

47

46

45

43

42

0

0

0

0

0

617

675

729

757

787

0

0

0

0

0

617

675

729

758

787

(575)