Hertz to Focus on Cars, Spin Off Equipment Rental Business
Hertz Global Holdings Inc. (NYSE:HTZ) announced Tuesday that it will spin off its equipment rental business into its own independent, publicly traded company. The divestment will allow the company to focus on renting cars.
The two new companies will be Hertz — which also operates as Dollar, Thrifty, and Firefly rental car businesses, as well as Donlen, a fleet leasing and management services division — and Hertz Equipment Corp., which will use the ticker HERC and will focus primarily on construction, oil and gas, and industrial markets. The company rents bulldozers, power tools, air compressors, and other equipment, according to the Los Angeles Times.
Hertz’s U.S. rental car business posted a 14 percent jump in revenue up to $1.48 billion for the fourth quarter, according to the Wall Street Journal. Both car and equipment rentals are up worldwide. Revenue from car rentals grew 5.8 percent and equipment rental revenue rose about 4 percent.
Hertz Chairman and CEO Mark Frissora said in a statement that the spinoff “will create separate companies which we expect to benefit from improved financial profiles that include increased earnings stability and higher returns on capital,” per the Los Angeles Times.
He said that “through unbundling these undervalued assets, we unleash current and future shareholder value” and that, “additionally, the separation will help each business focus on its strategic and operational performance.”
Hertz is expecting to receive $2.5 million from the divestment and plans to use that money to pay down debt as well as repurchase about $1 billion of its shares. Repurchases could replace up to 20 percent of the company’s current outstanding stock, the Wall Street Journal reports.
Rental car companies like Hertz and rival Avis Budget Group Inc. have seen stronger sales in the past few years as more and more Americans are spending money on travel and leisure following the end of the recession.
Hertz is expected to close on the deal by early 2015, according to reports from both the Los Angeles Times and the Wall Street Journal.