Credit: Shutterstock photoThe previously announced separation of Hertz Global Holdings Inc. 's HTZ equipment rental business is finally over. This has given rise to two entities: Hertz Rental Car Holding Company, which changed its name to Hertz Global Holdings Inc. and retained the ticker symbol "HTZ", and Herc Holdings Inc., which will trade on the NYSE as "HRI".
While Hertz Global will comprise the company's worldwide rental car business and leasing business of Donlen Corporation, Herc Holdings will include the global equipment rental business. Hertz Global started trading on the NYSE independently from Jul 1, 2016, with nearly 85 million shares outstanding.
Under the deal terms, this separation included a 5-for-1 spin distribution, per which, shareholders of Hertz Global received one share for every five shares held. Also, every share of the existing company will represent one share of Herc Holdings. However, soon after the separation, these shares will be adjusted for a 1-for-15 reverse stock split.
With regard to this transaction, Hertz Global will receive nearly $2 billion, which it intends to utilize by paying a portion of its corporate debt, as part of its efforts to solidify its car rental network. Also, the company authorized a share buyback program worth $395 million, which further underscores its commitment toward rewarding shareholders.
The separation has been on Hertz's agenda since it was first announced in Mar 2014. This is well evident from the way it has been gearing up to operate as a stand-alone entity. The company has left no stone unturned in this regard, as reflected by its attempt to resize operations, appoint a fresh management team, and board members having profound knowledge and experience in the car rental industry.
Through this separation, the two companies will be able to concentrate on their respective core businesses, which will help boost shareholder value. Hence, this split actually forms part of Hertz's goal of enhancing its key car rental operations.
In this regard, the company has undertaken several efforts over the last one year including replenishing and resizing of the North American fleet; successfully integrating Dollar Thrifty Automotive Group, which was acquired in Nov 2012; enhancing consumer experience for the Hertz, Dollar and Thrifty brands; making technological advancements and achieving its 2015 cost savings target, while planning for incremental savings worth $350 million in 2016.
Further, Hertz made various strategic investments to expand its operations. Incidentally, the company partnered with on-demand valet parking firm, Luxe. Also, it inked deals with renowned ride sharing entities, Lyft and Uber Technologies, yesterday, in a bid to fortify its car sharing network across the country.
Apart from this, Hertz also strengthened its financial status as part of its preparations to operate separately. Evidently, the company sold its major stake in Car Inc. and expanded its commercial deal to 2023, while using the sale proceeds to fund its previous buybacks. Also, management undertook various debt-related actions, which are likely to reduce Hertz's interest expense by nearly $45 million in the second half of 2016 and $90 million in 2017. Further, the firm will not have any major corporate debt maturities due through 2019.
With the separation plan concluded successfully, all strategic initiatives on track, a solid financial position, newly approved share buyback program and latest deals with Uber and Lyft, we believe that the company is well-positioned to exploit opportunities in the car rental space. Also, it stands strong in the industry and is well on track to achieve its EBITDA margin target of 16%−18% over the next three to five years. This Zacks Rank #3 (Hold) stock rose 2.8% yesterday, closing trade at $11.07.
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Better-ranked stocks in the same industry include Core-Mark Holding Company, Inc. CORE , PFSweb Inc. PFSW , both with a Zacks Rank #1 (Strong Buy) and ExamWorks Group, Inc. EXAM , with a Zacks Rank #2 (Buy).
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
