...Hertz Corporation (A) Harvard Case Solution & Analysis | Recommend this | | Considering leveraged buyout Hertz in 2005, the complex, high-profile deals, and a good example of best practice in private equity. First of two parts, the Hertz LBO, taking the point of view of Clayton, Dubilier & Rice, the leader of the consortium of private trading shares to buy Hertz from Ford in the auction. Set in the final round of the auction, a pressing issue for the consortium is how to raise your previous bet. Reasonable rates should be based on how many of the private equity consortium could create by improving global operations Hertz, on the one hand, and a more efficient capital structure, on the other. Presents detailed descriptive information on both topics, but does not include detailed financial projections, to be formulated by students or supplied for the purposes of discussion, the teacher. “Hide by Timothy A. Luehrman, Douglas C. Scott Source: Harvard Business School 18 pages. Publication Date: October 19, 2007. Prod. #: 208030-PDF-ENG Analysis: The value of the Hertz Corporation calculated using discounted cash flow method is approximately $ 6.1 billion, whilst the final revised offer is $ 5.6 billion. The final offer of $ 5.6 billion is quite reasonable for the Hertz Corporation as it was considering that it would not be able to receive $ 5.4 billion earlier. The price is little lower than $ 6.1 billion but is quite reasonable. The possible impact of synergies...
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...The value of the Hertz Corporation calculated using discounted cash flow method is approximately $ 6.1 billion, the offer is $ 5.6 billion. The final offer of $ 5.6 billion is quite reasonable for the Hertz Corporation as it was considering that it would not be able to receive $ 5.4 billion earlier. The price is little lower than $ 6.1 billion but is quite reasonable. Hertz is valued at The possible impact of synergies after making several changes had reduced the costs and increased the profitability of the company. This had increased the price or value of the company and thus increased to $ 6.1 billion. The value of the Hertz Corporation is calculated using the cash flows generated by the RAC and HERC, these are combined together and adjustments are made to arrive at the corporate EBITDA. In calculating the value of the Hertz Corporation the impact of the synergies was also considered. By considering the forecasted value of the Hertz Corporation, sponsor will need to raise an extra $ 700 million equity. This is because value has increased from $5.4 billion to $ 6.1 billion, a difference of $ 700 million which is required to be raised by the sponsor. CCM must bid for the revised final offer made by the company, because by making the changes in the organization, it will reduce the cost and improve the profitability of the Hertz Corporation. Thus by considering these changes the value of the company has increased to $ 6.1 billion. So, it is better for CCM to accept the final...
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...Bidding on Hertz LBO case study The main issue of the case is that The Carlyle Group and its partners (Clayton, Dubilier & Rice, and Merrill Lynch Global Private Equity) must make a decision about the final terms of a bid to purchase the Hertz Corporation, a wholly owned subsidiary of The Ford Motor Company. Hertz had been put up for sale in June 2005. In order to initiate “consideration of strategic alternatives” Ford entered a dual-track process, which means pursuing an initial public offering and a private auction process simultaneously. A dual-track process gives several advantages to a Ford, a seller of Hertz, by affecting the bidding process: 1) a dual-track approach can maximize the price obtained by the seller because of competitive pressure of a viable IPO process that can drive bidders to put more money on the table; 2) a dual-track process can give a seller significant negotiating leverage over deal terms in a private sale; 3) a dual-track approach allows a seller to keep its options open until it becomes clear which route will yield the highest value, thus preserving flexibility and hedging against deal uncertainty; 4) while a dual-track approach magnifies the cost, complexity and management distraction inherent in any sale process, it may also enjoy useful synergies by providing to a seller a comparable information about value of the selling company. The seller can judge about fair ask price of its company based on due diligence of bidders...
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...Case 9 & 10 Analysis Seagate Technology Buyout The Hertz Corporation Advanced Corporate Finance MW 2:00-3:15 PM Question 1 On page 1, the “value-gap” is two-fold. It signifies an under-valuation of Seagate’s core disk drive operating assets due to unfavorable public market investor preferences. Furthermore, the value of the Veritas share price has caused the Veritas stake to far outweigh the value of Seagate’s stand-alone market capitalization. Since Seagate does not own at least 80% of the voting stock in Veritas, distributing the wealth intrinsic in that stake to Seagate shareholders would prove difficult due to the hefty corporate tax rate of 34% that would erode its full-value. From a sum of the parts perspective, it seems that since the Veritas shares held by Seagate appreciated by more than 200%, while Seagate’s shares only increased by 25%, the market assigned relatively no value to Seagate’s market leading position in the disk drive business. This lack of market recognition for the true value of Seagate’s assets forced management to seek action. The management believed that the value of Seagate should be attributed to the value of its operating assets. Since the market was attributing such a high value to its Veritas stake, the market made it appear that Seagate was an investment holding company, rather than being in the disk drives business. There also seemed to be a “value-gap” in the sense that the Veritas stake is attached to business risk in the software...
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...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...
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...1) The dual-track process used by Ford to initiate “consideration of strategic alternatives” affects the bidding process for Hertz by giving Hertz another plan of attack if other viable sale opportunities fall through. By obtaining an IPO price as a base for the value of the company, Ford’s strategy would give Hertz other options to retrieve necessary capital, thus reducing the amount of risk. This strategy would then give Hertz a base bid that would be either equal to or above the amount of what could be theoretically obtained from an IPO. 2) One way that Hertz conforms to be an “ideal LBO candidate” is the proven financial performance and pretax profit the company has generated since 1967. In addition, from 1985 to 2005, revenues had grown at a compound annual growth rate of 7.6%. Another characteristic that Hertz possesses as an ideal LBO candidate is their management team. Having a substantial amount of industry knowledge within a management team is a key component in ascertaining a company. Also, if need be an experienced manager (George Tamke) could replace the current CEO (Craig Koch) and restructure a new compensation structure based on newly developed incentive plans that targets cash flow and capital usage metrics. Based on these characteristics (as well as others) we believe that Hertz does have an attractive record and does qualify as an appropriate buyout target. 3) There are two primary value-creating opportunities sponsors can exploit in this transaction:...
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...or hold type of stock • Concluding thoughts, add additional research about the company • What you learned from the project • References (Cite all references in your paper using APA format) • Appendix (Include things you feel are relevant to your analysis) Introduction: Hertz, the largest car rental company in the US, has had its share of financial problems. This has resulted in massive layoffs. Some investors became concerned when Hertz was placed on the Audit Integrity list of American Companies without any doubt to go bankrupt. Hertz filed a suit against the research company but subsequently dropped it. Like many of the largest airlines and other travel firms, Hertz suffers from being in a business in which it has to satisfy millions of customers during an economic downturn. Hertz makes the Glassdoor list of “worst companies to work for.” Hertz was also on the primary list in an investigative report into “Aggressive Sales Tactics on the Internet and Their Impact on American Consumers” which was produced for a hearing on the subject by the US Senate Committee on Commerce, Science, and Transportation. Hertz has been rating low for both customer and employee satisfaction. I, personally, as an investor, I will be scared. After all, Finance is always the big part...
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...The Hertz Corporation – Leveraged Buy Out Key Inferences and Conclusions: 1. Hertz was attractive as a leverage buyout candidate, having: • Relatively low existing debt loads with assets available to further leverage; • A multi-year history of stable and recurring cash flows; • Hard assets (Rental Fleet and Equipment) that may be used as collateral for lower cost secured debt; • The potential for new management to make operational or other improvements to the firm to boost cash flows; • Market conditions (9/11) that depress the valuation or stock price. 2. CD&R had the following advantages if this deal went through • The use of debt increases (leverages) the financial return to the private equity sponsor. The total return of an asset to its owners, all else being equal and within strict restrictive assumptions, is unaffected by the structure of its financing. As the debt in an LBO has a relatively fixed, albeit high, cost of capital, any returns in excess of this cost of capital flow through to the equity. • The tax shield of the acquisition debt increases the value of the firm. This enables the private equity sponsor to pay a higher price than would otherwise be possible. Because income flowing through to equity is taxed, while interest payments to debt are not, the capitalized value of cash flowing to debt is greater than the same cash stream flowing to equity. Advantages of Private Equity LBOs: 1. One of the strengths of private equity investments is that...
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...by a put option. Roughly 85 % of Hertz’ domestic fleet and 74 % of its international fleet were program cars. Program cars will become more expensive in the future due to the fact that Ford and GM adopted new market strategies that deemphasized lower-margin sales of program cars Risk cars exposed the company to residual value risk. Generally less expensive than program cars. What could be the possible motivations for CD&R to buy (syndicated) Hertz? • Under exploiting of the firm’s potential due to mismanagement. Hertz managers were overconfident. The senior guys were absolutely convinced that they were running the most efficient, most productive, well-organized, well-oiled machine in the industry. • The room for increasing the operational efficiency. Value creation through cost savings. • Potential improvement of the capital structure. Lower cost of capital through extensive securitization. • Hertz was undervalued. • Unique strong brand • On airport market leadership • Good historical performance Operational Efficiency Improvements • U.S. RAC on airport operating expenses CD&R estimated that labor per transaction, administrative, and other costs had increased 41 %, 65 % and 30 %. • U.S. RAC off-airport strategy CD&R proposed to slow expansion, focus selectively on profitable growth, and close locations that failed to achieve positive contribution. • European operating SG&A expenses Hertz’ operational SG&A expenses as a...
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...Problem Statement In order for Hertz to expand into the hourly rental market segment and gain market share they will need to find a new way to appeal to a new customer segment. Analysis Plan / Data Used / Key Assumptions I will be using the SFAS Matrix, figure 1, to evaluate Hertz’s strengths, weaknesses, opportunities and threats when entering the short term rental car market to compete with Zipcar. In addition, I will be using the TOW’s matrix, figure 2, to hypothesize business strategies for Hertz to use to overcome their threats and weaknesses by leveraging their strengths and opportunities. The TOW’s matrix helps brainstorm business strategies Hertz can use to compete in the new market segment without having to copy Zipcar’s current business model. The areas I focused research on were on market size and target markets. Data Analysis and Tool Use In 2012, the rental car market industry was broken down into 4 segments, Car sharing, leisure car rental, business car rental and car leasing. Car sharing only accounted for 6% of the rental car industry; however, IBIS world estimates that car sharing is expected to grow over the upcoming years as consumers become more aware of their existence. Hertz’s current revenue stems from business and leisure customers; 43% of Hertz’s yearly revenue comes from the business segment and the remaining 57% comes from leisure customers. Whereas, Zipcar’s short term car rental strategy is targeting an “urbanite” which is a city dweller, environmentally...
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...Contents 1. Aim Page 3 2. Equipment Page 4 3. Circuit Diagrams Page 6 4. Method/Procedure Page 7 4. Conclusion Page 9 Aim For this assignment I aim to accomplish a better understanding of an RC filter (Resistor Capacitor) which is a circuit that comprises of at least one capacitor and resistor and the circuit must also be driven by a voltage or current source. Understanding this will enable me to demonstrate my knowledge based on this report about Resistor Capacitor Filters. Equipment For the experiment, we were provided with five different types of equipment. The electronic equipment that we used was indeed very essential in order to carry out the experiment. The following equipment that was used in this experiment is as follows: Resistance Decade Box – Is a variable resistor used for limiting the amount of current that flows within the circuit. Capacitor – Is an electronic device that serves an important role within electronics. It functions by collecting and storing electricity. Capacitors are made up of 2 equally charged conducting surfaces having opposite signs and separated by a dielectric which is the insulator. Signal Generator – Also known as a function generator is an electrical hardware device that allows the user to adjust frequency, output voltage, impedance, waveform, and modulation. In this experiment we are using the signal generator in conjunction with the oscilloscope. Oscilloscope – An oscilloscope...
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...that performs arithmetic and logic operations. Arithmetic instructions include addition, subtraction, and shifting operations, while logic instructions include AND, OR, XOR, and NOT operations. CPU (Central Processing Unit) CPU (Central Processing Unit) - otherwise known as a processor - is an electronic circuit that can execute computer programs. Both the miniaturization and standardization of CPUs have increased their presence far beyond the limited application of dedicated computing machines. Modern microprocessors appear in everything from automobiles to mobile phones. The clock rate is one of the main characteristics of the CPU when performance is concerned. Clock rate is the fundamental rate in cycles per second (measured in hertz, kilohertz, megahertz or gigahertz) for the frequency of the clock in any synchronous circuit. A single clock cycle (typically shorter than a nanosecond in modern non-embedded microprocessors) toggles between a logical zero and a logical one state. With any particular CPU, replacing the crystal with another crystal that oscillates with twice the frequency will generally make the CPU run with twice the performance. It will also make the CPU produce roughly twice the amount of...
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...Checkpoint in your own words IT/241 Intro to W-Lan technologies FRED HOLMES IV April Sturgess Friday May 4, 2013 What is frequency? Frequency is the number of cycles of a repeating signal. The unit of frequency is measured in hertz. Each hertz is equal to one cycle of an event in seconds. For a frequency to be considered an audio frequency it has to be between 15 Hz and 20000 Hz. A radio frequency will range from 20 kHz to 1 terahertz. A medium for radio frequency will be air and metal. Air will not conduct electricity so the displacement won’t happen. When it comes to infinity value, air will become resistant and only some current flow will go through. Metal is an electricity conductor. This means that the flow will be based on the resistance of metals and the components with in the metal. What is analogue modulation? Is the information which is applied to the carrier signal. This is usually with radio signals. The amplitude modulation will change any frequency of the signal. Frequency Modulation is the frequency of the Carrier can wave at the input signal with the level use multiple methods When comparing the modulation we can show that both use the same method. The only difference is that digit. While this process is going on the digital modulation can use multiple times. Digital will also apply filters to interfering...
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...NTC 406 Week 3 Individual Assignment Bandwidth is a Rate at which electronic signals can travel through a medium, such as a wire, cable, or channel or capacity of network to transmit data on network. There are different transmissions medium such as audio video and voice. Bandwidth need is different in the all because these all are different data format. In analog transmission (such as of voice signals over copper telephone lines) bandwidth is measured in cycles per second (or Hertz); for example, a telephone conversation requires about 4,000 Hertz (4 KHz) of bandwidth. In digital transmission (such as of data from one computer to another) bandwidth is measured in bits per second (BPS); for example, modern modems can send and receive data at 56,000 bps (56 Kbps) over ordinary telephone lines. For the same amount of data, digital transmission requires more bandwidth than the analog transmission, and different types of data require very different bandwidths. For example, full motion video normally requires about 10 million bits per second (10 Mbps) bandwidth which is sufficient to carry 1,200 simultaneous telephone conversations. A typical voice signal has a bandwidth of approximately three kilohertz (3 kHz); an analog television (TV) broadcast video signal has a bandwidth of six megahertz (6 MHz) -- some 2,000 times as wide as the voice signal. Three bandwidth techniques involves are as like Traffic Management/QoS, Caching and Compression so these are different bandwidth...
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...hi Table 3.3 lists the primary specifications for the Intel family of processors used in IBM and compatible PCs. Table 3.4 lists the Intel-compatible processors from AMD, Cyrix, NexGen, IDT, and Rise. NOTE Note in Table 3.3 that the Pentium Pro processor includes 256KB, 512KB, or 1MB of full-core speed L2 cache in a separate die within the chip. The Pentium II/III processors include 512KB of 1/2 core speed L2 cache on the processor card. The Celeron, Pentium II PE, and Pentium IIIE processors include full-core speed L2 cache integrated directly within the processor die. The Celeron III uses the same die as the Pentium IIIE, however half of the on-die cache is disabled, leaving 128KB functional. The transistor count figures do not include the external (off-die) 256KB, 512KB, 1MB, or 2MB L2 cache built in to the Pentium Pro, Pentium II/III, Xeon, or AMD Athlon CPU packages. The external L2 cache in those processors contains an additional 15.5 (256KB), 31 (512KB), 62 million (1MB), or 124 million (2MB) transistors in separate chips! Note in Table 3.4 that the Athlon includes either 512KB of L2 cache via separate chips, running at either one-half, two-fifths, or one-third the core speed, or 256KB of on-die L2 running at full-core speed, depending on which version you have. Processor Speed Ratings A common misunderstanding about processors is their different speed ratings. This section covers processor speed in general, and then provides more specific information about Intel...
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