Miss

13.12.2007

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

The Bid for Hertz

Casestudy: The Hertz Corporation

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Agenda
Hertz – Company Overview How to create value Deal Structure Financial Engineering Conclusion
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Intro

Ford Motor Company

Hertz Corporation
CD&ROther PE firms

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Hertz‘ business areas
 Off/On-airports  1,77 million cars  $17 bln market revenues  180 largest airports  The third largest company  $1,2 bln revenue  Off/On-airports  12% share of the market  $10 bln market revenues

RAC Hertz HERC

 The fourth largest company  $152 mln revenue

USA
Casestudy: TheHertz Corporation

Europe
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Region

Agenda
Hertz – Company Overview How to create value Deal Structure Financial Engineering Conclusion
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Clayton, Dubilier & Rice Inc.
  Private equity investment firm founded in 1978   Investments in 39 US and European businesses   Specialized in acquiring under-managed divisions   Hasobtained a higher and steady return on investment   The case of Hertz
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First Stage: Uninteresting Bid
YEAR 2002
  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 financingchallenge  Securitizing Hertz‘s rental fleet in cooperation with Lehman Brothers and Deutsche Bank   New proposals.
Casestudy: The Hertz Corporation

YEAR 2003
  CD&R convinced that Hertz‘s 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 Hertz‘s CEO.

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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.
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Improving Hertz Operations

  US RAC On-airport Operating Expenses

  US RAC Fleet Costs

  US RAC Off-airport strategy

HERTZ

  US RAC Non-Fleet CapEx

  European OpEx & SG&A

  HERCROIC

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Agenda
Hertz – Company Overview How to create value Deal Structure Financial Engineering Conclusion
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Key Questions of Deal Structure
1.  Can fleet be used as a source of debt capacity? 2.  Can ABS financing be used for a levered buy out? 3.  How can lenders be serviced andprotected?
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Proposed Corporate Structure
The Hertz Corporation
Domestic Subsidiaries
OpCo   OpCo owns rest of Hertz‘s assets   Conducts all rental transactions with customers   Leases fleet from FleetCo and provides equity for FleetCo

HERC

Hertz Vehicle Financing
FleetCo

Hertz International

  Bankruptcy remote special purposeentities provide optimized securitization for asset backed debt financing   Leasing rates from OpCo cover debt payments
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Casestudy: The Hertz Corporation

Agenda
Hertz – Company Overview How to create value Deal Structure Financial Engineering Conclusion
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Goals of new capital structure

1 2 3 4

Stability

  Hertz...