Hertz Corp. is believed to considering the sale of its equipment rental business according to a report in the Financial Times and sources close to the situation. Hertz has reportedly engaged Bank of America Merrill Lynch and Barclays for advice on improving shareholder returns. Reportedly some shareholders and hedge funds have urged the company to unload Hertz Equipment Rental Corp. despite its profitability.
According to reports, equipment rental accounted for $1.1 billion of Hertz Corp.’s $8.2 billion in revenue for the first nine months of 2013, and $207 million of its $1.3 billion in adjust pre-tax profit.
Some activist investors have apparently pressured Hertz to unload the equipment rental business, stating that the company’s free cash flow profile would increase. Hertz plans an internal review of the equipment rental business, exploring possible options. The situation is viewed as a challenge for new chief financial officer Tom Kennedy who joined the company last month after leaving Hilton Worldwide.
Meanwhile, Hertz’ board of directors has unanimously adopted a one-year shareholder rights plan after observing unusual and substantial activity in the company shares. The plan is “designed to allow all Hertz shareholders to realize the long-term value of their investment by reducing the likelihood that any person or group would gain control of Hertz through open market accumulation without appropriately compensating the company’s shareholders for such control or providing the board sufficient time to make informed judgments,” Hertz said in a statement.
The company said the rights plan is similar to plans adopted by numerous publicly traded companies and was not in response to a takeover bid. The rights will generally become exercisable only if a person or group acquires beneficial ownership of 10 percent or more of the company’s common stock. Hertz said it is issuing one preferred share purchase right for each current share of common stock outstanding at the close of business Jan. 9. If after a person or group acquires 10 percent or more of the company’s common stock — 15 percent or more in the case of passive institutional investors — the company merges into another company, an acquiring entity merges into the company or the company sells or transfers more than 50 percent of its consolidated assets or earning power, then each right will entitle its holder to purchase a number of shares of common stock of the person engaging in the transaction at twice the exercise price. Rights held by any person or group whose actions trigger the rights plan would become void.
Hertz is based in Park Ridge, N.J. HERC is No. 3 on the RER 100.
