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Hertz Lbo Case

In: Business and Management

Submitted By efinny88
Words 7895
Pages 32
9-208-030
REV: JANUARY 16, 2009

TIMOTHY A. LUEHRMAN DOUGLAS C. SCOTT

The Hertz Corporation (A)
We started banging on the door of Ford in 2002 and got very little reception at first. I wouldn’t say we got laughed out of the room, but close to it. — David Wasserman, Clayton, Dubilier & Rice In the first days of September 2005, partners at the private equity firm Clayton, Dubilier & Rice (CD&R) were preparing a final bid in pursuit of the largest and most complicated deal they had ever undertaken. For more than three years CD&R had patiently pursued an acquisition of The Hertz Corporation, the global car and equipment rental company owned by Ford Motor Company. A three-firm consortium led by CD&R made a preliminary bid in July 2005, as did two other interested buyers. In late July they began conducting due diligence and working on a complex financing scheme in preparation for a final bid due August 30. George Tamke, a CD&R operating partner, led a team that identified and quantified significant opportunities to improve Hertz’s operating efficiency. At the same time, CD&R financial partners David Wasserman, Michael Babiarz, and Nathan Sleeper worked on a capital structure that would lower Hertz’s capital costs substantially, partly by making use of asset-backed securities (ABS) secured by its large fleet of rental cars. The combination of potential operating and financing efficiencies made Hertz an attractive investment opportunity. However, the proposed transaction entailed substantial risks. Hertz’s business was mature, capital intensive, and cyclical. The company faced well-established competition in all its major markets and had long operated with relatively little leverage under the protection of a large parent corporation. The proposed transaction would create a financing structure that was not only highly levered but also novel and complex. And Hertz would...

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