Hertz to spin-off equipment rental division

By Euan Youdale18 March 2014

Hertz Corp is to spin-off its equipment rental division, Hertz Equipment Rental Corp (HERC), in a US$2.5 billion deal that is expected to close in early 2015.

The separation of HERC from the car rental businesses is planned in the form of a tax-free spin-off to Hertz shareholders. Hertz said proceeds of the transaction will be approximately US$2.5 billion, with the funds used to pay down Hertz debt and support a newly approved $1 billion share repurchase programme.

“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,” said Mark Frissora, chairman and chief executive officer of Hertz Corp.

“Our rental car and equipment rental businesses are leaders in their respective markets with valuable assets and tremendous long-term potential. Through unbundling these undervalued assets, we unleash current and future shareholder value."

Mr Frissora continued, “In fact, 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.”

Following the separation, HERC will remain one of the largest and most diversified equipment rental businesses in the world with approximately 335 branches across the world.

The company had annual revenues of over $1.5 billion in 2013, with 38% of its 2013 revenues derived from the construction market, 26% from industrial, 36% from other markets including oil and gas, and from other specialty niche markets, such as pump and power, government services, and the entertainment industry.

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