The board of directors of Hertz Global Holdings, Inc. (NYSE:HTZ) announced today that they had approved the spin-off of its equipment rental business, Hertz Equipment Rental Corporation (HERC) as an independent, publicly traded company.
Hertz Global Holdings, Inc. (NYSE:HTZ) plans to separate HERC from rental car businesses in the form of a tax-free spin-off to its shareholders. The company said the Internal Revenue Services (IRS) sent a Private Letter Ruling allowing the separation of its business in a tax-efficient manner. The completion of the spin-off of HERC is expected early in 2015.
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In a statement, Marc P. Frissora, chairman and CEO of Hertz Global Holdings, Inc. (NYSE:HTZ) said, “The actions announced today will create separate companies which we expect to benefit from improved financial profiles that include increased earnings stability and higher returns on capital.”
Frissora added that the rental and equipment rental businesses of Hertz Global Holdings, Inc. (NYSE:HTZ) are leaders in their respective markets with valuable assets and long-term potential. According to him, separating the businesses will unleash current and future shareholder value.
Furthermore, Frissora said, “We believe there is a potential for multiple expansion even if both businesses only trade in line with their peers. Additionally, the separation will help each business focus on its strategic and operational performance. With respect to capital allocation, our new leverage ratios may allow for incremental return of capital to our shareholders given the current credit environment.”
The company expects to receive net cash proceeds of approximately $2.5 billion from the spin-off of HERC. The management of Hertz Global Holdings, Inc. (NYSE:HTZ) plans to use the proceeds to pay off its debt and to finance its newly approved $1 billion share repurchase program.
According to the company, the new share repurchase program replaces the $300 million share buyback plan announced last year. Hertz Global Holdings, Inc. (NYSE:HTZ) bought back $87.5 million of its shares under the previous repurchase program.
Hertz Global Holdings, Inc. (NYSE:HTZ) indicated that it will likely buyback as much 20% of its outstanding shares of common stock after the spin-off of HERC. The total number of shares to be bought under the new repurchase program depends on market conditions.
The company is confident that it will remain the leading rental car company worldwide after the spin-off of HERC.
Hertz Global Holdings, Inc. (NYSE:HTZ) has approximately 11,555 rental locations in Asia, Australia, Africa, Europe, Latin America, the Middle East, New Zealand and North America. Total revenue from its rental car and fleet leasing business was $9.23 billion in 2013.
HERC will also remain as the largest and most diversified global equipment rental business with approximately 335 branches in Canada, China, France, Spain, Saudi Arabia and United States as well as through its international franchisees. The business generated more than $1.5 billion in annual revenues last year.