Business Context and Reporting Period
This Form 8-K, dated December 10, 2012, reports on Hertz Global Holdings, Inc. (Hertz Holdings). The filing primarily details the completion of the acquisition of Dollar Thrifty Automotive Group, Inc. on November 19, 2012, and a concurrent secondary public offering of shares by existing investment funds.
Key Financial Metrics
Acquisition and Financing
- Purchase Price: Approximately $2.1 billion in cash for Dollar Thrifty common stock (net of approximately $400 million of Dollar Thrifty cash utilized).
- Financing Structure:
- Issuance of $700 million of 5.875% Senior Notes due 2020.
- Issuance of $500 million of 6.250% Senior Notes due 2022.
- Incurrence of $750 million in Incremental Term Loans (maturing March 11, 2018).
- Pro Forma Debt: Estimated total combined outstanding debt of approximately $16.2 billion as of September 30, 2012.
- Pro Forma Assets: Estimated total combined assets of approximately $23.8 billion as of September 30, 2012.
Dollar Thrifty Historical Performance
- Revenue (FY 2011): $1.55 billion.
- Revenue (9 months ended Sept 30, 2012): $1.21 billion.
- Net Income (FY 2011): $160 million.
- Net Income (9 months ended Sept 30, 2012): $145 million.
Secondary Offering
- Shares Sold: 50,000,000 shares by Clayton, Dubilier & Rice, The Carlyle Group, and BofA Merrill Lynch.
- Proceeds: Hertz Holdings receives no proceeds; shares sold by existing stockholders.
- Post-Offering Ownership: Selling funds retain approximately 26% of outstanding common stock.
- Stock Price: Last reported sale price on December 7, 2012, was $16.10 per share.
Material Changes and Pro Forma Impact
The acquisition of Dollar Thrifty represents a material expansion of Hertz's operations. On a pro forma basis (assuming the transaction occurred on January 1, 2011):
- 2011 Pro Forma Revenue: Approximately $9.8 billion.
- 2011 Pro Forma Net Income: Approximately $349.8 million.
- 2011 Pro Forma EPS: $0.79 per share.
- 9 Months 2012 Pro Forma Revenue: Approximately $7.7 billion.
- 9 Months 2012 Pro Forma Net Income: Approximately $361.5 million.
- 9 Months 2012 Pro Forma EPS: $0.81 per share.
Note: Pro forma figures include the proposed sale of the Advantage brand and related concessions to satisfy FTC requirements.
Outlook, Risks, and Contingencies
Regulatory Divestitures
As a condition of the Merger Agreement and FTC approval, Hertz is required to divest:
- The Simply Wheelz subsidiary (Advantage brand).
- Certain on-airport car rental concessions to the Advantage Buyer (Adreca Holdings Corp.).
- Additional on-airport concessions to the Advantage Buyer or other FTC-approved buyers.
Accounting and Valuation Risks
- Acquisition Accounting: Final adjustments for acquisition accounting are pending valuation studies. Actual adjustments may differ materially from the pro forma estimates presented.
- One-Time Charges: Pro forma information does not reflect one-time charges incurred or expected in connection with the acquisition.
- Forward-Looking Statements: Pro forma data is for informational purposes only and does not project future financial results.
Investor Verification Checklist
- Verify the final purchase price and any adjustments to the $2.1 billion acquisition cost.
- Confirm the timeline and terms for the divestiture of the Advantage brand and airport concessions.
- Review the final acquisition accounting adjustments once valuation studies are complete.
- Monitor the impact of the new $1.2 billion in senior notes and $750 million in term loans on liquidity and interest coverage ratios.
- Assess the integration progress of Dollar Thrifty's 280 corporate locations and 1,300 franchise locations.