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Hertz to Spin Off Equipment Rental Business

A 2013 Mustang convertible car rented through Thrifty in Massachusetts
A 2013 Mustang convertible car rented through Thrifty in Massachusetts. Photo/Michael Kappel

NAPLES, Fla. – The Hertz Corporation announced on Tuesday that it will separate into two publicly traded companies – a car rental corporation and an equipment rental concern. Hertz (NYSE:HTZ) will consist of the Hertz, Dollar, Thrifty and Firefly car rental businesses, as well as the Donlen fleet leasing and management services. The other will be the Hertz Equipment Rental Corporation (NYSE:HERC), with its 335 branches and international franchises.

Hertz's board of directors thinks the split will create a stronger growth profile and more competitive position for each company with enhanced management focus, resources and processes that are more directly aligned with each business's unique strategic priorities

Hertz will receive net cash proceeds from the equipment rental spin-off of approximately $2.5 billion. The money will be used to pay down Hertz debt and support a newly approved $1 billion share repurchase program.

HTZ Chart

Mark P. Frissora, chairman and chief executive officer of The Hertz Corporation. "Through unbundling these undervalued assets, we unleash current and future shareholder value. In fact, we believe there is a potential for multiple expansion even if both businesses only trade in line with their peers. Additionally, the separation will help each business focus on its strategic and operational performance. With respect to capital allocation, our new leverage ratios may allow for incremental return of capital to our shareholders given the current credit environment."

Hertz has 11,555 rental outlets and franchises throughout the world. In an earnings conference call with analysts, company officers spoke little of franchise-level performance or how the company's focus on the split might impact North American business owners with Hertz franchise licenses. In describing Hertz's efforts, CEO Frissora did tell analysts about the benefits of increased royalty fees to Hertz from its franchise owners: "Along with solid growth, we reported improved pricing driven by higher ancillary sales and royalty fees increase with the expansion of our Dollar Thrifty brands to new and existing Hertz franchisees. "

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