Posted by: Aaron Pressman on October 27, 2006
It looks like the three leveraged buy-out firms that own Hertz are trying to make some kind of statement about just how much can be sucked out of a recent acquisition before it’s flipped. The kind of statement that’s in the neighborhood of about $1.4 billion. As bounty hunter Jack Walsh aka Robert DeNiro said in Midnight Run: that’s a very respectable neighborhood.
Recall that proceeds of the original $1 billion IPO, filed in July, were going to be used to repay debt that funded a $999 million special dividend in June to LBO owners Clayton, Dubilier & Rice, Inc., The Carlyle Group and Merrill Lynch Global Private Equity. This week, the firms filed a revised prospectus upping the shares to be sold in the initial offering and boosting the deal value to $1.8 billion. Where's the extra dough going this time? Mostly to pay a new special dividend of $426.8 million or more (depending on the IPO share price). After that choice pay out, the sponsors will have recouped more than half of the $2.3 billion they put up to take Hertz off Ford's hands at the end of 2005.
The company's underlying performance away from the ever-expending debt load still looks pretty good. Revenue for the first nine months of 2006 topped $6 billion, up 8% from the same period last year. Earnings before interest, taxes, depreciation and amortization hit $2.3 billion, a gain of 9%. Net income plunged to $76 million from $325 million largely due to an almost doubling of interest costs. The number of car rental transactions was about unchanged while the average revenue per rental rose 3%. How overall revenue jumped that much despite seemingly tepid transaction and average revenue increases isn't crystal clear. Something in the car division's results called "non-rental rate revenue" and reported as a negative number dropped and non-car equipment rentals appear to have grown strongly but that's a fraction of the overall business.
With 320.6 million shares outstanding after the IPO, if Hertz prices at the mid-point of its filed $16 to $18 a share range, the company will have an equity market cap of almost $5.5 billion plus some $13-ish billion in total debt (debt stood at $13.96 billion on Sept. 30 but will be reduced with proceeds of the IPO) and cash of $441 million. That's an enterprise value of about $18 billion. There's a bit too much restating of everything in prior periods to get a sold handle on trailing 12-month results but the EV is less than 2-1/2 times 2005 revenue.