Вы находитесь на странице: 1из 27

13.12.

2007

Case Study:
The Hertz Corporation
Presentation: Mariano Mateos, Ricardo Velilla, Elias Vlker

The Bid for Hertz

Casestudy: The Hertz Corporation

13.12.2007

Agenda
Hertz
Hertz Company
Company Overview
Overview
How
How to
to create
create value
value
Deal
Deal Structure
Structure
Financial
Financial Engineering
Engineering
Conclusion
Conclusion
Casestudy: The Hertz Corporation

13.12.2007

Intro

Ford Motor
Company

Hertz
Corporation
CD&R

Other PE
firms

Casestudy: The Hertz Corporation

13.12.2007

Hertz business areas


Off/On-airports
1,77 million cars

RAC
Hertz
HERC

$17 bln market


revenues
180 largest
airports

Off/On-airports
12% share of the
market
$10 bln market
revenues

The third largest


company
$1,2 bln revenue

The fourth
largest company
$152 mln
revenue

USA

Europe

Region
Casestudy: The Hertz Corporation

13.12.2007

Agenda
Hertz
Hertz Company
Company Overview
Overview
How
How to
to create
create value
value
Deal
Deal Structure
Structure
Financial
Financial Engineering
Engineering
Conclusion
Conclusion
Casestudy: The Hertz Corporation

13.12.2007

Clayton, Dubilier & Rice Inc.


Private equity investment firm
founded in 1978
Investments in 39 US and
European businesses
Specialized in acquiring
under-managed divisions
Has obtained a higher and
steady return on investment
The case of Hertz
Casestudy: The Hertz Corporation

13.12.2007

First Stage: Uninteresting Bid


YEAR 2002

YEAR 2003

CD&R began studying the


rental car business (RAC).
Early in its investigation, CD&R
studied Budget and Alamo.
Hertz Much more attractive.
Ford dismissed the proposal as
uninteresting and unfeasible.
CD&R financing challenge
Securitizing Hertzs rental fleet
in cooperation with Lehman
Brothers and Deutsche Bank
New proposals.

CD&R convinced that Hertzs


capital structure was inefficient.
New visit to Ford The deal
could be indeed financed.
Hertz was non-strategic to Ford.
Ford executives remained
unconvinced as well as Hertzs
CEO.

Casestudy: The Hertz Corporation

13.12.2007

Second Stage: Ford sells


YEAR 2005
Early 2005 Ford core US auto business was in trouble.
Monetizing Hertz One step to improve Ford balance sheet.
Ford advisors recommended two tracks:
IPO Filed in June
Sale of the business Proposal and preliminary bids by
July

Ford made confidential financing and operating information.


Hertz executives Informational meetings with potential buyers.
After a month of due diligence, CD&R identified several specific
opportunities for improving operations.
Casestudy: The Hertz Corporation

13.12.2007

Improving Hertz Operations

US RAC On-airport
Operating Expenses

US RAC Fleet Costs

US RAC Off-airport
strategy

US RAC Non-Fleet
CapEx

HERTZ

European OpEx &


SG&A

HERC ROIC

Casestudy: The Hertz Corporation

13.12.2007

10

Agenda
Hertz
Hertz Company
Company Overview
Overview
How
How to
to create
create value
value
Deal
Deal Structure
Structure
Financial
Financial Engineering
Engineering
Conclusion
Conclusion
Casestudy: The Hertz Corporation

13.12.2007

11

Key Questions of Deal Structure


1.
1. Can
Can fleet
fleet be
be used
used as
as aa source
source
of
of debt
debt capacity?
capacity?
2.
2. Can
Can ABS
ABS financing
financing be
be used
used for
for
aa levered
levered buy
buy out?
out?
3.
3. How
How can
can lenders
lenders be
be serviced
serviced
and
and protected?
protected?
Casestudy: The Hertz Corporation

13.12.2007

12

Proposed Corporate Structure


The Hertz
Corporation
Domestic
Subsidiaries

HERC

Hertz Vehicle
Financing

Hertz
International

OpCo

FleetCo

OpCo owns rest of Hertzs assets


Conducts all rental transactions with
customers
Leases fleet from FleetCo and
provides equity for FleetCo

Bankruptcy remote special purpose


entities provide optimized
securitization for asset backed debt
financing
Leasing rates from OpCo cover
debt payments

Casestudy: The Hertz Corporation

13.12.2007

13

Agenda
Hertz
Hertz Company
Company Overview
Overview
How
How to
to create
create value
value
Deal
Deal Structure
Structure
Financial
Financial Engineering
Engineering
Conclusion
Conclusion
Casestudy: The Hertz Corporation

13.12.2007

14

Goals of new capital structure

Stability

Hertz should be able to survive a severe business


downturn without need to restructure or default

Flexibility

Capital structure should enable Hertz to make large


car purchases and manage fluctuations in the rental
activity

Liquidity

Hertz should be able to exploit future growth


opportunities without having to refinance

Lower
Costs

Funds should be obtained at significantly lower cost


than current capital

Casestudy: The Hertz Corporation

13.12.2007

15

The Layer Cake


OpCo (in m$)
ABL Facility

FleetCo (in m$)


396

Cash

526, 4

Term Loan B

1.850

US Fleet ABS

5.256,7

Senior Unsecured Notes

2.250

Internat. Fleet ABS

1.972,4

800

Total FleetCo Debt

7.229,1

Fleet Enhancement Cars

1.346,9

Senior Sub Notes


Existing Debt

Total OpCo Debt

5.296,0

Fleet Enhancement LC

Sponsor Equity

2295,0

Fleet Enhancement Cash

Total OpCo Equity

2295,0

Total FleetCo Equity

200
115,1
1662,0

Total Capitalization: 16,482,1 m$


Casestudy: The Hertz Corporation

13.12.2007

16

Advantages
New capital structure highly leverages Hertz
Long term debt agreements ensure stability
Not all debt was drawn immediately, so
liquidity and flexibility was ensured
Capital Cost are lowered through extensive
use of asset backed facilities
Casestudy: The Hertz Corporation

13.12.2007

17

Calculation of Capital Cost

Casestudy: The Hertz Corporation

13.12.2007

18

Agenda
Hertz
Hertz Company
Company Overview
Overview
How
How to
to create
create value
value
Deal
Deal Structure
Structure
Financial
Financial Engineering
Engineering
Conclusion
Conclusion
Casestudy: The Hertz Corporation

13.12.2007

19

The Question

Both PE-groups bid around $5,4 bln for Hertz


Ford asks for a revised bid
CD&R are considering whether $5,6 bln are
still a fair price...

Casestudy: The Hertz Corporation

13.12.2007

20

Original Valuation
This is what their valuation might have looked
like...

Casestudy: The Hertz Corporation

13.12.2007

21

What are the value drivers?


Lower
WACC
More
Revenues
Less
Costs

CD&R already pushed capital structure and leverage


to the limit
Significantly lower WACC is very unrealistic
Projections already include revenue growth forecast
No rational reason for Hertz to outperform the
market
Revenue growth above market highly speculative
CD&R included conservative cost cutting projections
Still quite some leeway for further improvements
Most realistic value driver

Timing of RAC and equipment rental are businesses with short


cash cycles
Cash
Thus timing of cash flows is no lever for value
Flows
Casestudy: The Hertz Corporation

13.12.2007

22

Improving Hertz Operations

US RAC On-airport
Operating Expenses

US RAC Fleet Costs

US RAC Off-airport
strategy

US RAC Non-Fleet
CapEx

HERTZ

European OpEx &


SG&A

HERC ROIC

Casestudy: The Hertz Corporation

13.12.2007

23

Further savings potential

Casestudy: The Hertz Corporation

13.12.2007

24

Modified valuation
By including higher cost savings into the
projections, we arrive at a valuation that is
$278 mln higher...

Casestudy: The Hertz Corporation

13.12.2007

25

Conclusion

We think...
...that a valuation of $5,6 bln can be justified
...CD&R should go ahead with the deal

History proves us right...


Casestudy: The Hertz Corporation

13.12.2007

26

Thank you for your


attention!
Any questions?
Casestudy: The Hertz Corporation

13.12.2007

27