After evaluating Hertz, we recommend that Carlyle Group purchase Hertz for at least $2.3 billion. If they want to achieve a 20% return, they should offer $5.2 billion. A higher offer price is recommended due to the competitive nature of the dual-track process.
The dual-track process has created a rather interesting environment for potential investors. Not only are investors competing with each other, but if the case that a deal is not worked out then Ford has made provisions for the company to be made public through an initial public offering (IPO). Hertz is a well established company with global operations. Furthermore, it has a stable revenue history that has had an extraordinary amount of consecutive growth. Additionally, Hertz has built a great deal of brand equity worldwide; especially in regards to the airport services they provide.
All of this makes Hertz an ideal candidate for a leveraged buyout. The interesting aspect to this case is how the dual-track process was structured. Ford must have known that their subsidiary would have been a prime target for a leveraged buyout and gained enough confidence to put the pressure of the IPO option as an incentive for potential investors to move quickly. However, even if no investors emerged to acquire Hertz, it is also reasonable to suspect that Hertz would have fared well in the IPO. Yet, in the event that Hertz was sold through an IPO, there is a substantial amount of risk involved. Ford would have been subjected to whatever the market deemed the appropriate price for the stock was. Therefore, from their perspective, they had to juggle potential LBO offers with their prediction of what the company would have commanded in the marketplace.
Hertz was a prime buyout target for a LBO because the company meets many of the classic criteria for a successful LBO target. It has an extremely strong brand name which consumer