Bidding For Hertz: Leveraged Buyout Essay

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April 17, 2009BIDDING FOR HERTZ LEVERAGED BUYOUTOverviewIn late summer 2005, Greg Ledford, managing director and address of automotive and transportation buyouts at the Carlyle grouping, engraft himself examining his BlackBerry atop the Great besiege of China. Though he had planned to be sightseeing with his daughter, his immediate focus was to square up the terms of the second-largest leveraged buyout in history. The target in question was rhythm, a auxiliary of the runway Motor go with, which was up for sale. Ledford needed to decide the price he and his co-investors would offer for bike as well a s assess the potential returns and risks of the deal. Already months of work, many dollars of callable diligence, and arrangement of tentative financing had de rangeed into the bid. Complicating matters, he knew he approach tough competition from a rival buyout group, no doubt engaged in a similar process.The race to win cps had been set in motion some(prenominal) months earlier, when William Clay carrefour Jr., the chairman and chief executive officer of hybridisation, 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 registration statement picture up a dual track process that would result in a oscillation initial habitual offering should other sale prospects fail. Ledford, who spoke to senior Ford managers on a regular basis, had gleaned that there was delight on Fords component part for an outright sale of wheel. He believed a private sale that was competitive with an IPO would be viewed favorably by Ford callable to its greater upfront exchange proceeds and certainty of execution. When no strategic buyer surfaced, Carlyle, Clayton, Dubilier & Rice (CD&R), and Merrill Lynch ball-shaped PrivateEquity (collectively Bidding Group) joined forces to bid on oscillation. It faced competition from another buyout consortium that include Texas Pacific Group, Blackstone, Thomas H. Lee Partners LP, and Bain bully LLC.This case was prepared by Susan Chaplinsky, prof of Business Administration, Darden Graduate School of Business, and genus Felicia Marston, Professor, McIntire School of Commerce. It was written as a basis for class discussion alternatively 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, propagate an e-mail to salesdardenbusinesspublishing.com. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any meanselectronic, mechanical, photocopying, recording, or other thanwithout the permission of the Darden School Foundation. Rev. 4/09.UVA-F-1560 bike Ownership account statementHertzs ownership history was characterized by a series of sales, public offerings, and leveraged buyouts (Exhibit 1).1 The confederation was first established in 1918 by 22- social class-old Walter L. Jacobs as a car term of a contract outgrowth with a modest inventory of 12 Model T Fords that Jacobs personally had repaired and repainted. The approximate was immediately successful, leading Jacobs to expand and kick in annual revenues of approximately of $1 million within five old age. At the $1 million mark, in 1923, Jacobs sold his conjunction to John Hertz, president of Yellow machine politician and Yellow Truck and Coach Manufacturing Company, who gave his name to the gild, creating Hertz Driv e-Ur-Self System and a bell ringer name that had endured ever since.John Hertz sold his investment cardinal years later to General Motors (GM). In 1953, GM in turn sold the Hertz properties to the Omnibus Corporation, which simplified the partnerships name to The Hertz Corporation in connection with a public pullulate offering on the New York telephone circuit Exchange (NYSE). In late 1987, unitedly with Hertz management, Ford Motor Company participated in a management buyout of the company. Hertz later became an independent, wholly owned 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 peachy 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 grown at a compound annual growth rate of 7.6% with positive year-over-year growth in 18 of those 20 years. Over the past same period, Hertz had emerged as a truly global enterprise it had car rental operations in 145 countries, and more(prenominal)(prenominal) than 30% of its total revenues were from outside of the get together States. Hertz was among the most globally recognise brands and had been listed in BusinessWeeks 100 virtually 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 split 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 facil ities operated in more than 7,600 airport and local locations throughout the world. The company led its competition in the airport car rental market in Europe with operations at 69 major airports. Hertz owned and leased cars from more than 30 manufacturers, most of which it had long-term leasing.