Free Bidding for Hertz: Leveraged Buyout Case Study Solution | Assignment Help

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Written by Gary F. Smith
Publish Date: 2024-10-04

Harvard Case - Bidding for Hertz: Leveraged Buyout

"Bidding for Hertz: Leveraged Buyout" Harvard business case study is written by Susan Chaplinsky, Felicia C. Marston. It deals with the challenges in the field of Negotiation. The case study is 19 page(s) long and it was first published on : Feb 17, 2009

The main protagonists of the case study are:

  • Hertz Global Holdings, Inc.
  • The creditors of Hertz
  • The shareholders of Hertz

3. Analysis of the Case Study

There are several factors to consider when evaluating a leveraged buyout. These factors include:
  • The company's financial condition
  • The company's industry
  • The company's management team
  • The availability of financing

In the case of Hertz, the company's financial condition is weak. However, the company's industry is attractive, and the company's management team is experienced. Additionally, there is a significant amount of financing available for LBOs.

Based on these factors, it is reasonable to conclude that a leveraged buyout is a viable option for Hertz.

4. Recommendaations

We recommend that Hertz pursue a leveraged buyout to acquire its own shares. The LBO should be structured as follows:
  • The purchase price should be $10 per share.
  • The LBO should be financed with a combination of debt and equity.
  • The debt should be secured by Hertz's assets.
  • The equity should be provided by a group of private equity investors.

5. Basis of Recommendaations

Our recommendations are based on the following factors:
  • Hertz's financial condition is weak. The company has a high level of debt and its stock price has been declining.
  • Hertz's industry is attractive. The car rental industry is a global industry with high barriers to entry.
  • Hertz's management team is experienced. The company's management team has a track record of success.
  • There is a significant amount of financing available for LBOs. The current low-interest-rate environment makes LBOs an attractive option for private equity investors.

6. Conclusion

We believe that a leveraged buyout is the best option for Hertz. The LBO will allow Hertz to reduce its debt, improve its financial condition, and pursue growth opportunities.

7. Discussion

There are several risks associated with a leveraged buyout. These risks include:
  • The risk that the company's debt will become too high and the company will be unable to repay its debt.
  • The risk that the company's stock price will decline and the company will be unable to sell its shares.
  • The risk that the company's management team will not be able to execute the company's business plan.

We believe that these risks are outweighed by the potential benefits of a leveraged buyout.

8. Next Steps

If Hertz decides to pursue a leveraged buyout, the company should take the following steps:
  • Hire an investment bank to advise the company on the LBO.
  • Prepare a business plan that outlines the company's strategy for growth.
  • Secure financing for the LBO.
  • Negotiate the terms of the LBO with the private equity investors.
  • Close the LBO and acquire the company's shares.

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Case Description

In August 2005, The Carlyle Group and its partners (Clayton, Dubilier & Rice, and Merrill Lynch Global Private Equity) must finalize the terms of a bid to purchase the Hertz Corporation. The Ford Motor Company had put Hertz, a wholly owned subsidiary, up for sale in April 2005, and in June 2005 Hertz entered a dual-track process, that would result in its sale or an initial public offering (IPO). The case provides detailed pro forma projections for the transaction that allow students to examine the synergies of the deal and estimate a value and bid for Hertz. Students must consider whether their bid provides an adequate return to the sponsors, can produce a higher value for Hertz than can an IPO, and can best the bid of a rival bidding group. The case is appropriate for use in courses on corporate finance, private equity, or deal valuation. Because of the rich range of issues that can be considered, the case also works well as a capstone case or in a case competition. For instructors wishing to provide students an overview of the role and practices of private equity, we recommend combining the Hertz LBO case with its companion case, "Investing in Sponsor-Backed IPOs: The Case of Hertz" (UV1409). The Hertz IPO was announced in July 2006, just seven months after the LBO was completed. The two cases cover a wide range of issues that arise over the course of entry and exit of private equity investments.

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