Hertz Spins Off Equipment Rental Business; To Buy Back $1 Bln Shares

(RTTNews) - Hertz Corp.'s (HTZ) board has approved the plans of separation into two independent, publicly traded companies. The two companies would be "Hertz," comprised of the Hertz, Dollar, Thrifty and Firefly rental car businesses as well as Donlen, a provider of fleet leasing and management services, and "HERC," the Hertz Equipment Rental Corp.

The separation is intended to be in the form of a tax-free spin-off to Hertz shareholders, and the firm has received a Private Letter Ruling from the Internal Revenue Service, allowing Hertz to separate the businesses in a tax-efficient manner. The HERC separation is expected to be complete by early 2015.

Hertz would receive net cash proceeds from a HERC spin-off of around $2.5 billion, which would be used to pay down Hertz debt and support a newly approved $1 billion share buyback program. As part of this new repurchase program, the major shares are likely to be purchased following the separation of HERC. The buybacks might reach 20% of Hertz's outstanding shares, including the $1 billion already approved.

After the separation, Hertz hopes to maintain a target net corporate leverage ratio of between 2.5x to 3.5x net debt / EBITDA. Given Hertz's new target net corporate leverage ratio, the company said it may opportunistically look to return additional capital to shareholders on an ongoing basis.

Hertz' board anticipates that the planned separation of the equipment rental business from the car rental business would create a stronger growth profile and more competitive position for each company; optimize the companies' capital structures based on the objectives of each independent company; allow each business to attract and retain personnel by offering equity-linked compensation; as well as create a more targeted investment opportunity with multiples and trading valuations that more accurately reflect the strengths and opportunities of each business.