Posted By: Janine Delacroix
By Yung KimSun Nov 12, 12:13 PM ET
NEW YORK (Reuters) - Less than a year after private equity
funds bought Hertz Global Holdings Inc. (NYSE:HTZ - news), the world's
largest car rental company is on track for one of the largest
U.S. stock flotations of the year.
ADVERTISEMENT
var lrec_target="_top";var lrec_URL=new Array();
lrec_URL[1]="http://us.ard.yahoo.com/SIG=12fuda8jt/M=540720.9558360.10292400.1442997/D=news/S=7665819:LREC/_ylt=A9FJqYh_0VdFtdgAogCb.HQA/Y=YAHOO/EXP=1163390367/A=4104668/R=0/id=flash/SIG=11m6h82to/*http://www.asseenontvnetwork.com/track/click/257466/";
var lrec_fv="clickTAG=javascript:lrec_window(1)";
var lrec_swf="http://us.a2.yimg.com/us.yimg.com/a/li/livemercial/110706_ny_lrec_swf.swf";
var lrec_altURL="http://us.ard.yahoo.com/SIG=12fuda8jt/M=540720.9558360.10292400.1442997/D=news/S=7665819:LREC/_ylt=A9FJqYh_0VdFtdgAogCb.HQA/Y=YAHOO/EXP=1163390367/A=4104668/R=1/id=altimg/SIG=11m6h82to/*http://www.asseenontvnetwork.com/track/click/257466/";
var lrec_altimg="http://us.a2.yimg.com/us.yimg.com/a/li/livemercial/110706_ny_lrec_gif.gif";
var lrec_w=300;var lrec_h=250;
if (window.yzq_a == null) document.write("");if (window.yzq_a)
{
yzq_a('p', 'P=S_0eW0LaS.b_RHlUzL09FxWnSDRIwkVX0X8ABMPD&T=18rk9o39d%2fX%3d1163383167%2fE%3d7665819%2fR%3dnews%2fK%3d5%2fV%3d1.1%2fW%3d8%2fY%3dYAHOO%2fF%3d1228435084%2fH%3dY2FjaGVoaW50PSJuZXdzIiBjb250ZW50PSJlcXVpdHk7ZnVuZHM7c3RvY2s7bW9uZXk7aXQ7RXF1aXR5O0Z1bmQ7TFA7cHJpY2U7Y3JlZGl0O0RvbGxhcjtsb2FuO2RydWc7IiByZWZ1cmw9IiIgdG9waWNzPSIi%2fS%3d1%2fJ%3d88A949D1');
yzq_a('a', '&U=13agv3g9d%2fN%3d.zJ.BULaX.o-%2fC%3d540720.9558360.10292400.1442997%2fD%3dLREC%2fB%3d4104668');
}
Private equity investors, whose appetite for acquisitions
is fueling a surge in overall M&A activity, have been
shortening the time between leveraged buyouts and the initial
public offerings they often use to cash out on the deals.
Companies are also boosting offering sizes after paying
themselves larger dividends and loading up with debt.
"When you have so much money in these deals, it increases
the pressure to an enormous degree to get liquidity," said Tom
Taulli, founder of InvestorOffering.com. "Investors are pushing
for faster turnarounds and the deals are becoming flips as
opposed to investments."
ML Global Private Equity Fund LP, an affiliate of Merrill
Lynch (NYSE:MER - news), and buyout firms Carlyle Group and Clayton
Dubilier & Rice bought Hertz from Ford Motor Co. (NYSE:F - news) last
December for $5.6 billion, or $15 billion including debt.
Park Ridge, New Jersey-based Hertz, which also has one of
the largest equipment rental businesses in the United States,
is scheduled to float about 88 million shares on Wednesday, or
about 27.5 percent of the company, according to a prospectus
filed with the Securities and Exchange Commission.
COULD BE NO. 2 U.S. IPO
The company could raise more than $1.8 billion if the
shares price at the top of a $16 to $18 forecast range and
over-allotment options are exercised. The company would also be
valued at about $5.8 billion.
At an $18 share price, Hertz would be the No. 2 U.S. IPO
this year after the $2.6 billion float of credit card
association MasterCard (NYSE:MA - news).
At that price, Hertz would trade at 57 times annualized
earnings, based on current earnings, which are depressed by
debt service payments, according to Francis Gaskins president
of IPO Desktop, a research firm based in Marina del Rey,
California.
Actual earnings would be higher once the IPO proceeds are
used to pay down debt, making for a smaller price-earnings
ratio.
Still, Hertz's valuation looks lofty compared with rivals
Dollar Thrifty Automotive Group Inc. (NYSE:DTG - news) and Avis Budget
Group, Inc. (NYSE:CAR - news), which trade at about 17 and 16 times
earnings respectively, according to Reuters Estimates.
The Hertz investors are set to reap a paper gain of nearly
$4 billion on $2.3 billion they invested less than a year ago.
The three firms will also receive a special dividend of up
to $642 million from Hertz if the deal prices at the midpoint
of the range and the underwriters exercise their option to sell
13 million additional shares.
In June, the investors used a $1 billion loan and cash on
hand to pay a $999.2 million dividend to current stockholders.
MIXED RESULTS
Private equity-backed IPOs have turned in mixed results
this year.
Burger King Holdings Inc. (NYSE:BKC - news), which private equity
bought in 2002 for about $1.5 billion, went public in May.
After a slight initial gain from a $17 offering price, shares
slid as low as $12.41 in August. Shares have since rebounded
and closed Friday at $17.84.
A consortium of investors won a heated auction for drug
maker Warner Chilcott Holdings Company Ltd. (Nasdaq:WCRX - news) in 2004
with a $3 billion bid.
In September, the company priced shares at $15, below the
forecast range and ended its first day on the market flat.
Share prices have fallen since, closing Friday at $13.
Some private equity backed deals have done better.
Newspaper publisher GateHouse Media Inc. (NYSE:GHS - news), rose as
much 20 percent in its market debut in October after an
$18-a-share pricing and closed Friday at $21.09.
Taulli said the Hertz IPO could not be better timed, with a
bustling IPO market, but it pushes the envelope in terms of
size and the short time between the buyout and the IPO.
"But if the IPO goes off very well, it makes it easier to
get other private equity mega-deals done," he said.
The information reported above is property of Yahoo! inc. and reprinted or modified with legitimate permission.