Hertz Case
BIDDING FOR HERTZ
November 19, 2012
EXECUTIVE SUMMARY In April 2005, Ford announced its intention to investigate possible strategic alternatives for Hertz. At the same time, Ford’s stock price went down significantly. This negative reaction from the market shows Ford’s lack of confidence in its future operation, since Hertz is one of the strongest subsidiaries and revenue sources for Ford. Even though Ford would lose significant value of itself in this transaction, the slump in Ford’s main business especially in North American segment and a possible downgrade of its bond rating forced them to conduct drastic financing strategy to recover itself. The company had two alternatives to rid of Hertz: selling to a private bidding group via LBO transaction and listing on public stock exchange market. Their priority was to acquire the immediate cash through this transaction of Hertz. Our analysis of the LBO offer proposed by Bidding Group yields an expected return of 21.2%, and expected return by the public market to equal 24%. FORD’S MOTIVATION In 2005, Ford is valuing possibilities of selling its 100% subsidiary of Hertz in the most financially favorable manner. During Jacques Nasser’s presidency, Ford lost its financial stamina. Nasser successfully finalized many deals including Volvo, Land Rover and Hertz, yet this aggressive business expansion and buyout gave Ford a very vulnerable position. As the Ford’s need for cash increase, it began considering the strategic alternatives of selling Hertz privately to private investors and going to a public offering. This dual truck process can increase the bargaining power for Ford in the bidding for Hertz. FORD’S DUAL-TRACK PROCESS (1) During Jacques Nasser’s presidency, Ford’s cash reserve was quite low and they were looking to unload Hertz in the most financially feasible way. By putting Hertz on the market to privately held bidding groups like Carlyle’s and not just releasing an IPO, Ford created a more flexible and
November 19, 2012
EXECUTIVE SUMMARY In April 2005, Ford announced its intention to investigate possible strategic alternatives for Hertz. At the same time, Ford’s stock price went down significantly. This negative reaction from the market shows Ford’s lack of confidence in its future operation, since Hertz is one of the strongest subsidiaries and revenue sources for Ford. Even though Ford would lose significant value of itself in this transaction, the slump in Ford’s main business especially in North American segment and a possible downgrade of its bond rating forced them to conduct drastic financing strategy to recover itself. The company had two alternatives to rid of Hertz: selling to a private bidding group via LBO transaction and listing on public stock exchange market. Their priority was to acquire the immediate cash through this transaction of Hertz. Our analysis of the LBO offer proposed by Bidding Group yields an expected return of 21.2%, and expected return by the public market to equal 24%. FORD’S MOTIVATION In 2005, Ford is valuing possibilities of selling its 100% subsidiary of Hertz in the most financially favorable manner. During Jacques Nasser’s presidency, Ford lost its financial stamina. Nasser successfully finalized many deals including Volvo, Land Rover and Hertz, yet this aggressive business expansion and buyout gave Ford a very vulnerable position. As the Ford’s need for cash increase, it began considering the strategic alternatives of selling Hertz privately to private investors and going to a public offering. This dual truck process can increase the bargaining power for Ford in the bidding for Hertz. FORD’S DUAL-TRACK PROCESS (1) During Jacques Nasser’s presidency, Ford’s cash reserve was quite low and they were looking to unload Hertz in the most financially feasible way. By putting Hertz on the market to privately held bidding groups like Carlyle’s and not just releasing an IPO, Ford created a more flexible and