Hertz Corporation Spins Off Equipment Rental Business

Hertz Equipment Rental Spin-Off Image

In a major move, U.S. car rental business Hertz Corporation announced plans to spin off its rental equipment division into a separate, publicly traded company earlier this week. The new company, Hertz Equipment Rental Corporation or HERC, is estimated to be valued at $5 billion, according to a recent story in the Financial Times. In 2013, HERC, which trades from over 300 branches across the United States, Europe, and Asia, generated $1.5 billion in revenue. In addition to the construction sector, the company also leases equipment to the oil, gas, and entertainment industries.

As a result of the trade, Hertz has said it will collect $2.5 billion in cash which the company will use to pay down debt and launch a $1 billion share buyback plan. Its new market value, according to analysts, will be $4.8 billion. The spin-off comes after several years of speculation from investors and analysts that the move would be beneficial to the company’s valuation. Currently, Hertz trades on a 2013 price-to-earnings ratio of 15.2 times earnings, below that of its rival Avis on 17.9. This difference reflects the lower valuation placed in the equipment rental business according to analysts cited in the article.

Hertz, which at one time had considered merging the rental business with a rival operator, worked with the Bank of America Merrill Lynch, Barclays, and the law firms Jenner & Black and Debevoise & Plimpton on the separation. Since March 14, shares in Hertz have risen slightly giving the company a market value of just over $12 billion.

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