Uva-F-1560, Hertz

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The bidding process for Hertz began when William Ford Jr. announced plans to explore “strategic alternatives” for Hertz in April 2005. Two months later in June, an S-1 registration statement was filed setting up a “dual track process” that would result in a Hertz IPO should other sale prospects fail. This decision affects the bidding process in multiple ways. For one there is less time for the two bidding groups to come up with a price and resulting agreement. They are forced to act quickly and find a price that the Hertz management will agree upon. If they don’t do this, then Hertz will just go through with the IPO. This could lead to a driven up price, since the bidding groups will do whatever it takes to win the bid.

Hertz is an interesting LBO candidate. After evaluating Hertz’s company history and financial statements, we believe that they would be a prime target for a leveraged buyout. In the United States, Hertz is a top three competitor in the rental car market in terms of revenues, mainly competing with Enterprise Rent-A-Car and Avis. Plus, Hertz is currently the leader in the airport rental segment in the U.S. and Europe. This segment was estimated in 2005 to be approximately 79% of the total U.S. RAC revenues. Moreover, Hertz’s HERC segment ranked third in terms of revenues and looked to hold this position as the industry rebounded. To continue, Hertz was listed in BusinessWeek’s “100 Most Valuable Global Brands” in 2005 and every year that it had been illegible for the honor and currently held rental car operations in 145 countries, giving the company an extremely high amount of brand recognition. Some of this high brand equity may be attributed to consumer trust which spurs from Hertz’s stable financial history. Hertz has produced a pretax profit each year since 1967 and had 7.6% compound annual growth rate from 1985 to 2005, showing positive year over year growth in 18 of those 20 years. Moreover, the bidding group believed that an amount of...
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