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Group 8
Abhishek Verma
Ashish Verma
Chaitra Chandrashekar
BACKGROUND
Ford, the holding company of Hertz Corporation, one of the worlds largest car
rental companies, is in pursuit of monetizing the latter by filing for an IPO of
Hertz shares and simultaneously pursue sale of the business. Eventually Ford
would execute the option that offers higher value. CD&R, one of the PE firms,
had approached Ford on several occasions to acquire Hertz because of its
industry leading position. Ford and Hertz management are skeptical of CD&Rs
intent and financial strength. The decision hangs on two outcomes:
1. Would a sale create more value than an IPO
2. Would CD&R beat the next bid from the Bain-Blackstone-Lee-TPG
consortium?
PROBLEM STATEMENT
CD&R and other PE groups have bid around $5.4 B. Ford have asked the PE
firms to revise their bid. CD&R has to decide whether $5.6 B is a fair price to
bid for The Hertz Corporation.
OBSERVATION
The car rental business is highly risky, asset intensive, seasonal and cyclical.
External factors like recession, heavy competition, disruptions like
September 11 terrorist attacks, makes this industry highly volatile. The
fluctuating sizes of companys rental fleets, combined with relatively high
fleet turnover, impose unusual demands on the companys capital structure
and financing arrangements. Hence these rental firms are often forced into
restructuring and ownership changes.
HERTZS OPERATIONAL IMPROVEMENT
U.S. RAC on airport operating expenses: CD&R estimated that labor per
transaction, administrative, and other costs had increased 41 %, 65 %
and 30 %.
U.S. RAC fleet costs: Despite its scale advantages, Hertz historically
had higher fleet costs than those of key competitors.
II.
RECOMMENDATION
In the light of above analysis, it make sense for CD&R should go ahead with the
deal with a valuation of $5.6 B.