Bidding for Hertz: Leveraged

Buyout
Presented by-
Group 10
Shatakshi Sharma(034009)
Sudhanshu Kumar(034017)
Rishabh Jain(034039)
Shounak Banerjee(034044)
Vansh Rajpal(034051)
Hardik Jain(034055)
Background
● The Hertz buyout was the second largest leveraged buyout in history
● The target of concern here is Hertz. It was a subsidiary of FORD motor company which was up
for sale
● In this case, Hertz has already been established as one of the largest equipment and car rental
industry. Ever since 1967, it has posted pretax profits every single year and owes it to the car
rental segment as their major source of revenue. There were two business segments of Hertz.
Hertz currently operated in two business segments: car rental ("Hertz Rent A Car" or "RAC")
and equipment rental ("Hertz Equipment Rental Company" or "HERC")
● In 2005, it was estimated that RAC would comprise 81% of company revenues and HERC 19%.
● The car rental segment was Hertz’s largest source of revenue and had a very strong brand name
● By 2005, Ford was experiencing difficulty in its core auto manufacturing business and
decided to divest Hertz. Ford took a two-track approach to doing that, simultaneously
pursuing an initial public offering (IPO) of Hertz, as well as a bidding process for the
outright sale of the company
● Carlyle partnered with two other firms—the CD & R (Clayton, Dubilier & Rice) company
and Merrill Lynch Global Private Equity. They too had been interested in Hertz for some
time and were attracted by the strong brand and orphan status
● It faced competition from another buyout consortium that included Texas Pacific Group,
Blackstone, Thomas H. Lee Partners LP, and Bain Capital LLCI
Problem
● Bidding processes for the company already started and competition was between
buyout consortiums and the company should have the best bid amongst the lot
● Ford was interested in an outright sale of Hertz. The company believed that private sale
competitive with an IPO would be a better option. So, the value of the FORD should be
higher than what it can get from an IPO
● The other issue was to fix the offer price and the consequent risks and returns.It should
provide adequate returns to sponsor limited partners
Valuation