Bidding For Hertz: Leveraged Buyout Essay

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April 17, 2009 dictation FOR HERTZ LEVERAGED BUYOUTOverviewIn late summer 2005, Greg Ledford, managing director and head of automotive and transportation buyouts at the carlyle Group, found himself examining his BlackBerry atop the Great wall of China. Though he had planned to be sightseeing with his daughter, his immediate commission was to finalize the terms of the second-largest leveraged buyout in history. The target in question was cycles/second, a subsidiary of the cut across repel Company, which was up for exchange. Ledford needed to decide the impairment he and his co-investors would offer for cycle as well as measure the potenti al returns and risks of the deal. Already months of work, many dollars of callable diligence, and arrangement of tentative financing had gone into the invoke. Complicating matters, he knew he faced tough competition from a rival buyout group, no doubt engaged in a mistakable military operation.The race to win Hertz had been set in motion some(prenominal) months earlier, when William Clay Ford Jr., the chairman and CEO of Ford, announced plans to explore strategic alternatives for Hertz in April 2005. That announcement was followed in June 2005 by the filing of an S-1 modification statement setting up a dual track process that would result in a Hertz IPO should other sale prospects fail. Ledford, who spoke to senior Ford managers on a regular basis, had gleaned that there was interest on Fords go bad for an outright sale of Hertz. He believed a private sale that was competitive with an IPO would be viewed favorably by Ford due to its greater upfront coin proceeds and certain ty of execution. When no strategic buyer surfaced, Carlyle, Clayton, Dubilier & Rice (CD&R), and Merrill lynch Global PrivateEquity (collectively Bidding Group) joined forces to bid on Hertz. It faced competition from another buyout consortium that included Texas peace-loving Group, Blackstone, Thomas H. Lee Partners LP, and Bain Capital LLC.This case was prepared by Susan Chaplinsky, professor of Business Administration, Darden Graduate domesticate of Business, and Felicia Marston, Professor, McIntire School of Commerce. It was written as a basis for class discussion rather than to illustrate effective or ineffective handling of an administrative situation. Copyright 2008 by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved. To order copies, send an e-mail to salesdardenbusinesspublishing.com. No part of this existenceation may be reproduced, stored in a retrieval system, utilise in a spreadsheet, or transmitted in any form or by a ny meanselectronic, mechanical, photocopying, recording, or otherwisewithout the authorization of the Darden School Foundation. Rev. 4/09.UVA-F-1560Hertz Ownership HistoryHertzs ownership history was characterized by a series of sales, public offerings, and leveraged buyouts (Exhibit 1).1 The keep company was first established in 1918 by 22-year-old Walter L. Jacobs as a machine letting operation with a modest inventory of 12 amaze T Fords that Jacobs personally had repaired and repainted. The venture was immediately successful, leading Jacobs to expand and acquire annual revenues of approximately of $1 million within five years. At the $1 million mark, in 1923, Jacobs sold his company to John Hertz, chair of Yellow Cab and Yellow Truck and Coach Manufacturing Company, who gave his name to the company, creating Hertz Drive-Ur-Self System and a brand name that had endured ever since.John Hertz sold his investment three years later to General Motors (GM). In 1953, GM in turn s old the Hertz properties to the Omnibus Corporation, which alter the companys name to The Hertz Corporation in union with a public stock offering on the New York origination Exchange (NYSE). In late 1987,together with Hertz management, Ford Motor Company participated in a management buyout of the company. Hertz later became an independent, on the whole have subsidiary of Ford in 1994. Less than three years later, Ford issued a minority stake of shares through a public offering on the NYSE on April 25, 1997. In early 2001, Ford reacquired the outstanding shares of Hertz and the company again became a wholly owned subsidiary of the Ford Motor Company.Hertz Financial History and Business SegmentsThe large investor interest in Hertz over time was due in part to the companys proven financial ability. In fact, the company had produced a pretax profit each year since 1967. During the period 1985 to 2005, revenues had great(p) at a compound annual growth rate of 7.6% with haughty yea r-over-year growth in 18 of those 20 years. Over the past same period, Hertz had emerged as a truly global enterprise it had motorcar rental operations in 145 countries, and more than 30% of its make out revenues were from outside of the United States. Hertz was among the most globally recognized brands and had been listed in BusinessWeeks 100 Most Valuable Global Brands (limited to public companies) in 2005 and every year since it was eligible for inclusion.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%. RAC was supported by a network of franchises that together with company-owned facilities operated in more than 7,600 airport and local locations passim the world. The company led its competition in the airport car rental market in Europe with operations at 69 study airports. Hertz owned and leased cars from more than 30 manufacturers, most of which it had long-term leasing.