18.03.2014

Hertz to spin off Equipment Rental

Hertz, the car and equipment rental company has published its 2013 results and confirmed that it will spin off its equipment rental business into a separate public company.

The Equipment Rental company saw revenues rise 11 percent in 2013 to $1.54 billion, while pre-tax profits for the business improved 53.5 percent to $233.3 million.

The fourth quarter was softer, with revenues up four percent to $400.9 million, while pre-tax profits increased 23.5 percent to $63.7 million. Rental volumes increased 9.8 percent, while rental rates improved by 2.4 percent.

At the same time the group announced that its directors have approved plans to separate into two independent, publicly traded companies. The car group will be called Hertz, while the equipment rental operation will be Hertz Equipment Rental Corporation. The separation will be in the form of a tax-free spin-off to existing Hertz shareholders and be concluded by the first quarter 2015.

Hertz will receive around $2.5 billion cash from the spin off, that will be used to pay down debt and support a $1 billion share repurchase programme.
After the two companies are split, Frissora and most other directors will remain with the car rental business, while the Equipment operation will need to find a new chief executive and form its own board.

Hertz chief executive Mark Frissora said: "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. 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. In fact, we believe there is a potential for multiple expansion even if both businesses only trade in line with their peers. Additionally, the separation will help each business focus on its strategic and operational performance. With respect to capital allocation, our new leverage ratios may allow for incremental return of capital to our shareholders given the current credit environment."

Hertz Equipment has 335 branches in the United States, Canada, France, Spain, China and Saudi Arabia, as well as some international franchisees. Its fleet includes a large number of aerial work platforms and telehandlers. It claims that 38 percent of its revenues are derived from the construction market, 26 percent from industrial and 36 percent from other markets including oil and gas.

See Hertz may spin off its equipment rental business

Vertikal Comment

This is a very good move for all those working at Hertz Equipment, the two operations have never really been sensible bed fellows. While they are both rental operations, car rental operates quite differently to equipment rental and the benefits of being together are very limited.

The equipment company’s prospects will depend on the management it ends up with and its initial debt structure. It is a major player in the North American market and while it has some very interesting overseas operations, one of the first things it will want to look at is its long term international strategy. It may well consider selling off some of its overseas operations in order to reduce debt and to focus its resources on markets such as North America where it already has a strong profitable base.

One thing is for sure, this move will throw up some solid opportunities for Hertz Equipment employees.