If there is one thing that analysts in the car rental industry have pushed for, it is to see Hertz separate its equipment and car rental operations. Hertz is already one of the biggest names in the car rental industry. If it could just shed the extra weight that its equipment rental business adds, Hertz could completely focus on growing its car rental operations. Now, Hertz Global Holdings has announced that it will do just that.
In a move that seems to come out of left field, Hertz Global Holdings said that it is going to create a spinoff company with its equipment leasing company. This will allow Hertz to completely focus on nothing more than car rentals. Industry analysts have been waiting for this to happen since 2006, when Hertz first went public.
According to Hertz Global Holdings, it will separate these two operations into two companies that will be publicly traded. First will be Hertz, which will be comprised of its car rental and the Donlen fleet leasing operations. The other company will be the equipment rental company, Hertz Equipment Rental Corp. Hertz will receive at least $2.5 billion from this spinoff company to help pay down debt. This money will also be used to support a huge $1 billion share buyback.
One analyst from JPMorgan Chase and Co., Kevin Milota, said that people who are already invested in this company are going to welcome this move with open arms. This should help offset news of the previously weak quarter that Hertz saw. Due to this new move, Hertz shares have been moved to “buy” status.
This is a huge win for Hertz’s car rental operations. The equipment rental section of the business was always using up funds that Hertz could have been using to repay its loans and other dividends. However, the equipment rental portion of the company needed these extra funds to pay for backhoes and bulldozers, which do not come cheap.
Hertz went on record saying that this new move will help create a very strong growth profile for both new sectors. It will put Hertz in a position where it can truly focus on the rental industry. It should really help improve the management focus for both sectors and open up resources for both companies so that they have more room to grow.
Separating the car and equipment rental businesses will probably be done by 2015. This is not a move that is going to happen overnight. Hertz also noted that the majority of the huge share buyback is going to be done after the two operations have separated from each other. The share buyback may reach as high as 20 percent of all outstanding stock.