Harvard Business Case - Hertz

Bidding for Hertz: Leveraged Buyout Case Memorandum ! Executive Summary: In mid-2005 there was an opportunity announced by Ford Motor Company that a subsidiary, Hertz is available for acquisition; however, they would undertake a dual-track process to determine the best possible plan for it. The dual-track process consisted of a buyout by a bidding consortium, specifically two that were bidding, or an IPO should Hertz’ sale fail. This is an attractive opportunity for the Carlyle group, as there is room for improvement in both Hertz’ HERC and RAC business units. As Hertz’ is a dominant player in the car and equipment rental industries, Carlyle group stands to earn an impressive rate of return on its investment should they find appropriate operational savings and financial synergies in Hertz. Dual-track Process and Hertz as an LBO target: Ford’s dual-track process affects the bidding process for Hertz by increasing the competition in attracting more potential bidding consortiums. Further, the mention of the IPO should the bidding process not succeed in Ford’s eyes means that there are other alternatives for existing Ford shareholders and the firm doesn’t require a group to acquire the firm. Hertz is an attractive opportunity for a takeover as there is a substantial balance sheet and high value of assets – rental cars and equipment. Because Hertz is a mature firm holding a large market share and strong market position, diversified in many global markets, it benefits strong regular and predictable cash flows partly due to its loyal customers from its GoldClub program. Regular cash flows are key to an LBO target because of the need to make regular interest and principle payments. Hertz also has relatively low debt, and as such the firm conforms to being an ideal LBO target. Further, the Carlyle group has a strong management team and is able to exploit potential cost-cutting measures ($400-$600 million1 annually). The dual-track process has already identified an exit...