Hertz Global to raise $2.5 bn through equipment rental business spin-off

Hertz Global Holdings Inc, the largest US car rental company by sales, today said that it hoped to raise around $2.5 billion by spinning off its equipment rental business, in order to repay debt and focus on its core car rental business.

Hertz, which has come under attack from investors and adopted the ''poison pill'' strategy in December 2014 to ward off a hostile takeover from activist investors like Daniel Loeb's Third Point Capital, said its board of directors has approved plans to separate into two independent, publicly traded companies.

The two companies will be "Hertz," comprising of the Hertz, Dollar, Thrifty and Firefly rental car businesses as well as Donlen, a provider of fleet leasing and management services, and "HERC," the Hertz Equipment Rental Corporation.

The separation will be in tax-free spin-off to Hertz shareholders, and the company expects the separation of HERC to close by early 2015.

Hertz said that the proceeds would be also used to fund a new $1 billion share repurchase programme. This new share purchase replaces the $300 million share repurchase program that the company announced in 2013, under which Hertz has utilised around $87.5 million to repurchase its own shares.

"The actions announced today will create separate companies which we expect to benefit from improved financial profiles that include increased earnings stability and higher returns on capital," said Mark Frissora, chairman and CEO of Hertz.

"Our rental car and equipment rental businesses are leaders in their respective markets with valuable assets and tremendous long-term potential. Through unbundling these undervalued assets, we unleash current and future shareholder value.

Post separation, Hertz will remain a market leading rental car company with approximately 11,555 rental locations throughout North America, Europe, Asia, Australia, Africa, the Middle East, Latin America and New Zealand.

Following the separation, HERC will remain one of the largest and most diversified equipment rental businesses in the world with approximately 335 branches in the US, Canada, France, Spain, China and Saudi Arabia,

HERC rents a broad range of equipment, including aerial manlifts, air compressors and tools, earthmoving equipment and power generators, forklifts and material handling, pumps, and trucks and trailers.

HERC also generates revenues from the sale of new and used equipment and consumables as well as through its Hertz Entertainment Services division, which rents lighting and related aerial products used primarily in the US entertainment industry.

HERC had annual revenues of over $1.5 billion in 2013, with 38 per cent of its 2013 revenues generated from the construction market, 26 per cent from industrial, 36 per cent from other markets, including oil and gas, and from other specialty niche markets, such as pump and power, government services, and the entertainment industry.