Bloomberg News

Hertz Investors Said to Favor Ex-Chief of Dollar Thrifty

August 21, 2014

Hertz Rental Cars

Hertz Global Holdings Inc. had been poised to reap the benefits of the consolidation it sowed in the rental-car industry over the last few years. Photographer: Patrick T. Fallon/Bloomberg

Hertz Global Holdings Inc. (HTZ:US) investors seeking to replace Mark Frissora as chief executive officer have a candidate in mind for the job: Scott Thompson, who sold Dollar Thrifty for $87.50 a share after Frissora initially offered $2.

One day after Hertz abandoned its 2014 forecasts, Fir Tree Partners, which holds more than 3 percent of the stock, said it’s urging the board to replace Frissora, and billionaire Carl Icahn disclosed an 8.5 percent stake and said he may seek board representation. At least one investor (HTZ:US) has been investigating whether Thompson is the right person to succeed Frissora, said three people familiar with the matter.

“When he left after the Hertz acquisition, he went out with a great reputation,” said Fred Lowrance, a Nashville, Tennessee-based analyst at Avondale Partners LLC. “It’s only natural to look to a guy who’s run a big rental-car company and run it well if indeed a change needs to happen.”

Since its 2012 acquisition of Dollar Thrifty Automotive Group Inc. brought most of the industry under the control of three main companies, Hertz has been unable to take advantage of the pricing power its consolidation wrought. While Avis Budget Group Inc. (CAR:US) has raised its outlook and seen its stock rise 71 percent this year, Hertz is up only 6 percent. It hasn’t reported financial results yet this year and said its previous three years of statements aren’t reliable.

Other investors holding more than 4 percent of Hertz also are urging the board to replace Frissora, and they have spoken with Thompson, according to people with knowledge of the matter who asked not to be identified because the discussions have been private.

Hertz Statement

Hertz said its board and management “value the views of all Hertz shareholders and welcome a constructive dialogue with them.” The company said it is addressing its “recent challenges” and that it is making progress on its accounting review.

“We remain focused on the business and executing our operating initiatives,” the company said in an e-mailed statement. “We have a good handle on the nature and scope of the issues in the business and are executing plans to resolve them.”

Icahn said yesterday he wants to meet with the company and may pursue board seats, according to the filing. He wants to discuss accounting issues and operational failures related to the company’s underperformance relative to peers and a “lack of confidence in management,” according to the filing.

‘Serious Missteps’

Fir Tree, which holds 13.8 million Hertz shares, said Frissora, who is also chairman, is responsible for accounting and management decisions that have weighed on the shares.

“The CEO has had some serious missteps, and it’s time for a change,” Scott Tagliarino, a spokesman for Fir Tree, said in a telephone interview. “We believe Hertz has an incredible brand and an opportunity to show leadership in the car-rental industry. We look to work constructively with management and the board to address these issues.”

The stock initially plunged after Hertz withdrew its financial forecasts for the year and said that results will be “well below” earlier projections, only to rebound on news of Icahn’s stake.

Shares of the rental-car company fell 3.9 percent yesterday to $30.33 today after diving as low as $27.47. They rose 1.2 percent to $30.70 at 7:42 a.m. New York time before regular trading.

Investor Icahn

Icahn, 78, who became an activist investor after gaining fame as a corporate raider in the 1980s, has recently taken large stakes at companies including Gannett Co. (GCI:US), Apple Inc. (AAPL:US), Family Dollar Stores Inc. (FDO:US), Netflix Inc. (NFLX:US), EBay Inc. (EBAY:US) and Dell Inc., agitating management and directors for shareholder-friendly changes.

The New York-based investor is worth more than $23 billion, according to Bloomberg Billionaires, and primarily invests his own fortune, rather than relying on money from outsiders.

Late last year, Hertz’s board voted unanimously to adopt a one-year shareholder-rights plan, which the company said wasn’t adopted in response to any specific takeover bid or proposal to acquire the company.

Under the plan, Hertz issued one preferred share purchase right for each share of common stock as of the close of business on Jan. 9. The rights aren’t exercisable until 10 percent of Hertz common stock is acquired by one person or group, excluding passive institutional investors, in which case the threshold is 15 percent.

Consolidating Industry

Hertz had been poised to reap the benefits of higher prices after the consolidation it sowed in the rental-car industry over the last few years. Its acquisition of Dollar Thrifty shrunk the number of major rental-car firms in the U.S. to three from four. Those four, including closely held Enterprise Holdings Inc., controlled about 98 percent of airport car rentals in the U.S., the Federal Trade Commission said in 2012 when it was reviewing the combination.

Hertz this year has been struggling with operational issues that risk longer-term damage to the brand. Its fleet is aging, and customers are facing long lines as discount offers don’t line up with available staffing.

Hertz also said Aug. 19 that Scott Sider is retiring as group president of Rent A Car Americas and that lead independent director George Tamke is retiring from the board. It designated Linda Fayne Levinson as independent lead director.

The elevation of Levinson to lead director suggests the Hertz board is looking for someone to sort through the situation and take control, said Jay Lorsch, a corporate governance professor at the Harvard Business School.

‘Tough’ Director

“She is tough,” he said in an interview. “They’re picking someone who has both the breadth of business experience and the determination to get it right.”

Levinson’s experience, including as one of the first female partners at McKinsey & Co., shows her gravitas, he said. She has a master’s degree in Russian literature from Harvard.

“Usually the appointment of a new lead director means the board sees a complex problem and they want someone to take charge, figure out what’s going on and get to the bottom of it,” Lorsch said. “My guess would be, with Linda, that’s what they’re trying to do.”

The changes on the board, by themselves, suggest the situation is serious, said Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware.

“Any time you have unexpected retirements from a board, it suggests there is some turmoil,” he said. “Any time there is a new lead director, it’s something to pay attention to.”

Recent Changes

Sider is the second top executive to leave in the last year. Tom Kennedy was named Hertz’s CFO in December, replacing Elyse Douglas, who had been in that role since 2007. Douglas stepped down in October, the company said, because she didn’t want to move to Florida, where the company moved its headquarters late last year.

The accounting problems also may delay the spinoff of Hertz’s equipment-rental unit, originally planned for early next year, the company said in June. In that transaction, the car-rental business would keep the Hertz name and get cash proceeds of about $2.5 billion to pay down debt and support a $1 billion share buyback.

The focus on accounting, which Hertz cited as a reason for lower profits, may add to the case for hiring Thompson, Lowrance said.

“As we’ve learned through this accounting-review process, there was nothing wrong with Dollar Thrifty’s numbers,” said Lowrance, the analyst. “Apparently they did it right so that holds some value now when Hertz doesn’t have it right.”

To contact the reporter on this story: Mark Clothier in Southfield, Michigan, at mclothier@bloomberg.net

To contact the editors responsible for this story: Jamie Butters at jbutters@bloomberg.net Tom Giles


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Companies Mentioned

  • HTZ
    (Hertz Global Holdings Inc)
    • $24.38 USD
    • -0.09
    • -0.37%
  • CAR
    (Avis Budget Group Inc)
    • $64.23 USD
    • -0.25
    • -0.39%
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