IPO To Shed Light On Hertz

Less than two years after being sold by Ford Motor Co. to private equity firms, Hertz Global Holdings once again is going public with a $1 billion initial public offering registered with the U.S. Securities and Exchange Commission in mid-July.

The most obvious potential impact to travel managers would be the availability of more company data from Hertz in its regular filings, said Neil Abrams, president of Purchase, N.Y.-based Abrams Consulting Group. "Before, as a private company, their most important numbers were not available," Abrams said. "Their full numbers will now be visible and transparent."

In fact, the move is part of a shift to an era in which data from car rental companies will become much more available than before. Besides Hertz, Cendant Corp., parent of the Avis and Budget brands, is spinning its car rental business off into its own company, which could be completed by October. Prior to these moves, the Dollar Thrifty Rental Group was the only publicly traded company dealing purely with car rental.

Both Ford—which sold Hertz last year in a $15 billion deal to a group of financial investors—and Cendant were providing information in their quarterly reports about their rental car arms. The data quality is much better, however, when the companies stand alone, Abrams said. "Before, you had two of the eight major brands fully disclosed," he said. "Now, all of a sudden, you're going to have five out of the eight."

Park Ridge, N.J.-based Hertz, the largest car rental supplier in terms of corporate travel agreements, is issuing the IPO to repay a $1 billion loan the company took out in June to pay a $999.2 million aggregate dividend to common stockholders, according to the registration statement. The amount and price of shares for the upcoming IPO were not set in the initial filing.

Part of the impetus for the IPO could have been the upcoming Avis-Budget deal and other potential moves that could be forthcoming within the car rental industry, Abrams said. "They may want to distance themselves and be first out there," he said. "They want to be ahead of the IPO curve and take advantage of the climate today."

Hertz is in a mandatory quiet period and is unable to comment on the IPO, but in its prospectus, the company outlined many of the challenges facing the car rental industry to potential investors, including the ongoing challenge of fleet costs. As auto manufacturers struggle to remain profitable, they want to put less emphasis on the lower-profit-bearing deals that supply rental car companies.

Former parent company Ford traditionally has supplied Hertz with the largest proportion of its fleet. However, Hertz's supply agreement with Ford expires in 2010, and Hertz is not sure whether it will be able to extend that agreement, nor has it entered into long-term supply agreements with any other auto manufacturers, according to the filing.

"In the future, we expect to buy a smaller proportion of our car rental fleet from Ford than we have in the past," Hertz said in its SEC filing. "If Ford does not offer us competitive terms and conditions, and we are not able to purchase sufficient quantities of cars from other automobile manufacturers on competitive terms and conditions, then we may be forced to purchase cars at higher prices, or on terms less competitive, than for cars purchased by our competitors.

The car rental industry has had success recently in getting its own price increases to stick and is hoping to apply the same to corporate rates as well. Despite this, Hertz warned investors that some competitors who "may have access to substantial capital may seek to compete aggressively on the basis of pricing."

Overall, however, the IPO is a positive indicator as far as the car rental industry goes, Abrams said. Revenues are approaching their pre-Sept. 11 levels industrywide, and the IPO shows that there is a perceived value in the marketplace for the company's shares, he said.

Hertz also is undergoing a change in management, with Mark Frissora on July 19 taking over as CEO for Craig Koch, who announced his departure last year because of family reasons. Frissora previously was CEO of automotive supplier Tenneco, and Abrams said it is the first time in recent history that someone without car rental experience will direct Hertz at the senior level. Koch, meanwhile, will take over as the chairman of Hertz's board of directors.