Sept. 12, 2005
(AP) DETROIT - Ford Motor Co., aiming to focus more on building cars and
trucks, said Monday it will sell its Hertz Corp. rental car business for
$5.6 billion in cash.
Dearborn-based Ford, the nation's second-biggest automaker, said it will
sell all shares of common stock in Hertz, its wholly owned subsidiary, to a
private equity group composed of Clayton Dubilier & Rice, The Carlyle Group
and Merrill Lynch Global Private Equity in a deal valued at about $15
billion, including debt.
Ford announced in April it was considering shedding Hertz, which it has
owned since 1994, to concentrate on its core automotive business. The
infusion of cash should help the automaker, which has been struggling with
falling sport utility vehicle sales, growing U.S. health care costs and
other issues. Ford's second-quarter profit fell 19 percent to $946 million.
"This transaction reinforces our commitment to strengthening our balance
sheet and investing in our core automotive business," said Don Leclair,
chief financial officer.
The deal is subject to regulatory approvals and is expected to be completed
by year's end.
Hertz plans a cash tender offer for up to $2.3 billion of outstanding debt
securities in connection with the transaction; certain other Hertz debt will
In addition, Ford Motor Credit Co., the automaker's finance arm, said
separately it intends to file a registration statement to exchange its own
debt securities for up to $2.4 billion of outstanding Hertz debt with
similar terms. Such an exchange could generate cash for Ford Motor Credit.
The transaction also involves another $4.7 billion in primarily other Hertz
debt, a Ford spokeswoman said.
Burnham Securities analyst David Healy called the deal "a reasonable move"
for Ford, which he said can certainly use the extra cash to enhance new
product development and offset rising health care expenses.
"Hertz has become less and less important as an outlet for Ford cars as Ford
has pared back sales to Hertz and other daily rental companies," Healy said.
"It's really a noncore business right now."
Still, Hertz is the world's largest general-use car rental business. It has
been a solid contributor to Ford's bottom line, with revenue of $6.7 billion
and net income of $365.5 million in 2004.
The company, founded in 1918, rents vehicles from 7,400 locations in more
than 150 countries, according to a recent filing with the Securities and
Exchange Commission. In addition, Hertz is a major supplier of rental
equipment such as tractors, dump trucks and power washers. Hertz rents
equipment from 340 locations in North America, France and Spain.
Hertz controlled 30 percent of the market at the 180 largest U.S. airports
in 2004. The company has been trying to expand its off-airport rental
business by opening neighborhood locations.
The ties with Ford may not be completely severed. In July, Hertz agreed to
continue buying and promoting Ford vehicles through August 2010, in exchange
for Ford paying half its advertising costs each year. It wasn't clear
whether that agreement would be kept in place.
Approximately 41 percent of the vehicles Hertz acquired domestically in 2004
were made by Ford and its subsidiaries, according to a recent SEC filing.
Some experts on private equity investors have said buyout firms often
acquire companies because they think they can make them bigger players in
the market. But because Hertz already is the world's largest general-use car
rental agency, the firms involved in this case could try to streamline
management and then take the company public.
Hertz, they say, is an appealing company for investors because it has a
relatively stable cash flow.
Two groups of firms had been competing for Hertz. The other was made up of
Bain Capital, The Blackstone Group, Texas Pacific Group and Thomas H. Lee
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