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NAPLES — The Hertz Corp. has approved plans to break off its equipment rental business into an independent publicly traded company. Hertz will continue on with its Hertz, Dollar, Thrifty and Firefly rental car businesses and the fleet leasing and management services company Donlen, while the equipment rental business will become Hertz Equipment Rental Corp.
The separation is planned as a tax-free spin-off to Hertz shareholders. Hertz says it has received a ruling from the Internal Revenue Service backing up the tax structure of the planned separation.
The board of directors says the separation would create more focused companies that are stronger and better positioned to handle competition. The separate companies could also have different capital structures. For Hertz, the company says, the separation would create less earnings volatility, higher returns on invested capital and accelerated free cash flow growth.
The separation is scheduled to close by early 2015.
Hertz expects to receive cash proceeds from a spin-off of $2.5 billion that will be used to pay down debt and support a newly approved $1 billion share buy-back program, which could cover 20% of the outstanding shares of common stock.
“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,” Mark Frissora, chairman and CEO of Hertz, says in a press release. “Through unbundling these undervalued assets, we unleash current and future shareholder value. 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.”
Following the separation, Hertz Equipment Rental Corp. will be one of the largest and most diversified equipment rental businesses in the world with 335 branches in the United States, Canada, France, Spain, China and Saudi Arabia, as well as through international franchisees. It had annual revenues of more than $1.5 billion in 2013, with 38% of its 2013 revenues coming 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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