...Professor Haddad May 6, 2014 Bidding for Hertz: Leveraged Buyout This case goes over two different perspectives, which are the buyer and the seller. The company Ford is the seller, which is presented two alternatives. The purpose is to raise capital from Hertz by issuing and IPO. The second option is an LBO. The “Bidding Group”, is the buyer for the LBO, which consists of Carlyle, Clayton, Dubilier, and Rice. They are from the Merrill Lynch Global Private Equity group. The question is what should the minimum and maximum price be accepted and paid for such deals. The Minimum price that Ford should accept for Hertz is the price of the IPO, which is 13.7 billion. This calculation is based on the pro froma statements on Hertz’s historical performance and market growth rate, which is assumptions and information. On the other side the maximum price that the Bidding Group should pay for the acquiring of Hertz is 14.9 billion. This number was calculated by taking the EBITDA and using the market multiple of 8X. This numbers come from the provided Exhibits and on the forecasted pro forma statements, which consist of operating efficiencies and information. Because Ford has two options to either sell equity, by issuing an IPO for Hertz, this is a value that cannot be ignored and should be considered significantly when making such a financial decision. For the Bidding group to make an competitive offer, it must be at minimal a little greater than the price Ford could fetch by issuing...
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...alternatives” affects the bidding process for Hertz by giving Hertz another plan of attack if other viable sale opportunities fall through. By obtaining an IPO price as a base for the value of the company, Ford’s strategy would give Hertz other options to retrieve necessary capital, thus reducing the amount of risk. This strategy would then give Hertz a base bid that would be either equal to or above the amount of what could be theoretically obtained from an IPO. 2) One way that Hertz conforms to be an “ideal LBO candidate” is the proven financial performance and pretax profit the company has generated since 1967. In addition, from 1985 to 2005, revenues had grown at a compound annual growth rate of 7.6%. Another characteristic that Hertz possesses as an ideal LBO candidate is their management team. Having a substantial amount of industry knowledge within a management team is a key component in ascertaining a company. Also, if need be an experienced manager (George Tamke) could replace the current CEO (Craig Koch) and restructure a new compensation structure based on newly developed incentive plans that targets cash flow and capital usage metrics. Based on these characteristics (as well as others) we believe that Hertz does have an attractive record and does qualify as an appropriate buyout target. 3) There are two primary value-creating opportunities sponsors can exploit in this transaction: operating synergies and financial synergies. The bidding group identified the following...
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...Case questions: Bidding for Hertz How does the dual-track process used by Ford to initiate “consideration of strategic alternatives” affect the bidding process for Hertz? The dual-track process used by Ford to initiate “consideration of strategic alternatives” affects the bidding process for Hertz by giving Hertz another plan of attack if other viable sale opportunities fall through. By obtaining an IPO price as a base for the value of the company, Ford’s strategy would give Hertz other options to retrieve necessary capital, thus reducing the amount of risk. This strategy would then give Hertz a base bid that would be either equal to or above the amount of what could be theoretically obtained from an IPO. In what way does Hertz conform or not conform to the definition of an “ideal LBO target”? Do you believe Hertz is an appropriate buyout target One way that Hertz conforms to be an “ideal LBO candidate” is the proven financial performance and pretax profit the company has generated since 1967. In addition, from 1985 to 2005, revenues had grown at a compound annual growth rate of 7.6%. Another characteristic that Hertz possesses as an ideal LBO candidate is their management team. Having a substantial amount of industry knowledge within a management team is a key component in ascertaining a company. Also, if need be an experienced manager (George Tamke) could replace the current CEO (Craig Koch) and restructure a new compensation structure based on newly developed incentive...
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...After evaluating Hertz, we recommend that Carlyle Group purchase Hertz for at least $2.3 billion. If they want to achieve a 20% return, they should offer $5.2 billion. A higher offer price is recommended due to the competitive nature of the dual-track process. The dual-track process has created a rather interesting environment for potential investors. Not only are investors competing with each other, but if the case that a deal is not worked out then Ford has made provisions for the company to be made public through an initial public offering (IPO). Hertz is a well established company with global operations. Furthermore, it has a stable revenue history that has had an extraordinary amount of consecutive growth. Additionally, Hertz has built a great deal of brand equity worldwide; especially in regards to the airport services they provide. All of this makes Hertz an ideal candidate for a leveraged buyout. The interesting aspect to this case is how the dual-track process was structured. Ford must have known that their subsidiary would have been a prime target for a leveraged buyout and gained enough confidence to put the pressure of the IPO option as an incentive for potential investors to move quickly. However, even if no investors emerged to acquire Hertz, it is also reasonable to suspect that Hertz would have fared well in the IPO. Yet, in the event that Hertz was sold through an IPO, there is a substantial amount of risk involved. Ford would have been subjected to whatever...
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...Hertz Ipo Case Analysis Executive Summary Hertz group had initiated an IPO in July 2006 when Carlyle group, together with Clayton, Dubilier &Rice, and Merril Lynch Global Private equity , three prominent firms had filed to take the firm public. However this action has come just seven months after the three had combined to purchase Hertz from Ford Motor Company for Approx. $15 million. Berg, MD of Vandelay Capital Management debated whether to invest in this IPO.The LBO sponsors had borrowed an additional $1 billion on top of the buyout financing to pay themselves a special dividend in June 2006 , being the biggest reason why the IPO generated widespread criticism along with the speed with which the IPO was conducted . In the face of this criticism, the demand for the Hertz IPO weakened, and the offer price was reduced from the initial file price range of $16-$18 to just $15. Berg must assess whether at $15 per share, Hertz offers an attractive investment for this fund. After detailed analysis on the sponsors' returns on their investment and the attractiveness of the $15 offer price to public shareholders, along with the circumstances surrounding the IPO, it was concluded and advised not to invest. Reasons behind the IPO One of the obvious reasons behind the IPO was Hertz’s strong brand equity that gave it strong pricing power since it was ranked as the top worldwide general use car rental brand and one of the largest rental companies in the U.S and Canadian markets...
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...Executive Summary Hertz group had initiated an IPO in July 2006 when Carlyle group, together with Clayton, Dubilier &Rice, and Merril Lynch Global Private equity , three prominent firms had filed to take the firm public. However this action has come just seven months after the three had combined to purchase Hertz from Ford Motor Company for Approx. $15 million. Berg, MD of Vandelay Capital Management debated whether to invest in this IPO.The LBO sponsors had borrowed an additional $1 billion on top of the buyout financing to pay themselves a special dividend in June 2006 , being the biggest reason why the IPO generated widespread criticism along with the speed with which the IPO was conducted . In the face of this criticism, the demand for the Hertz IPO weakened, and the offer price was reduced from the initial file price range of $16-$18 to just $15. Berg must assess whether at $15 per share, Hertz offers an attractive investment for this fund. After detailed analysis on the sponsors' returns on their investment and the attractiveness of the $15 offer price to public shareholders, along with the circumstances surrounding the IPO, it was concluded and advised not to invest. Reasons behind the IPO One of the obvious reasons behind the IPO was Hertz’s strong brand equity that gave it strong pricing power since it was ranked as the top worldwide general use car rental brand and one of the largest rental companies in the U.S and Canadian markets combined. Furthermore, the...
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...The Hertz Corporation – Leveraged Buy Out Key Inferences and Conclusions: 1. Hertz was attractive as a leverage buyout candidate, having: • Relatively low existing debt loads with assets available to further leverage; • A multi-year history of stable and recurring cash flows; • Hard assets (Rental Fleet and Equipment) that may be used as collateral for lower cost secured debt; • The potential for new management to make operational or other improvements to the firm to boost cash flows; • Market conditions (9/11) that depress the valuation or stock price. 2. CD&R had the following advantages if this deal went through • The use of debt increases (leverages) the financial return to the private equity sponsor. The total return of an asset to its owners, all else being equal and within strict restrictive assumptions, is unaffected by the structure of its financing. As the debt in an LBO has a relatively fixed, albeit high, cost of capital, any returns in excess of this cost of capital flow through to the equity. • The tax shield of the acquisition debt increases the value of the firm. This enables the private equity sponsor to pay a higher price than would otherwise be possible. Because income flowing through to equity is taxed, while interest payments to debt are not, the capitalized value of cash flowing to debt is greater than the same cash stream flowing to equity. Advantages of Private Equity LBOs: 1. One of the strengths of private equity investments is that...
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...management practices, and are a critical time in the life of a corporation. In this course we will use M&As as a focal point in our study of corporate finance. We will draw on, and extend your knowledge of finance topics including valuation, capital structure, financial distress, financial statement analysis, working capital management, securities markets, securities issuance, agency theory, corporate governance, executive compensation, and real and financial derivatives, and apply to M&As. Our study of change of control will include the economic motivations for M&A activity, advanced valuation, transaction structuring, creative financing, risk management, tactics for friendly M&A negotiations and hostile transactions, leveraged buyouts (LBOs), due diligence, and execution. By the end of the course you should: Be able to identify motives for transactions Understand reasons for differences in payment and financing Be able to recommend and justify payment and financing packages for a deal Understand incentives of different parties and how these will influence their actions Know the factors associated with long-run success or failure of transactions Know the tradeoffs associated with negotiated transactions, auctions, etc. Understand tactics for friendly...
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...Appendix VI: Hertz Corp. Case Study Overview: The Hertz buyout is one of the largest private equity deals. It drew criticism in the media and from union members, after the company’s new owners paid themselves $1.3 billion in dividends not long after the transaction closed and ultimately financed the payments by selling stock to the public. The company has realized hundreds of millions of dollars in improved financial results annually, but also has cut thousands of jobs as it has sought to make operations more efficient. Figure 7 provides an overview of the LBO transaction, including a time line of key events. Background: Hertz says it is the world’s largest general use car rental company, with approximately 8,100 locations in about 145 countries. Hertz also operates an equipment rental company with about 380 locations worldwide, although car rentals accounted for 80 percent of 2007 revenues. Ford Motor Co. had purchased an ownership stake in Hertz in 1987 and purchased the company outright in 1994. CD&R executives said that the firm emphasizes making operational improvements in companies it acquires. The firm has long had an interest in multilocation service businesses, they said, as evidenced by investments including Kinko’s and ServiceMaster. The Carlyle Group is one of the biggest private equity firms and says it has demonstrated expertise in the automotive and transportation sectors. Its investments include Dunkin’ Brands, AMC Entertainment, Inc., and Grand Vehicle Works...
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...Lindsey Bembry Leveraged Buyouts A leveraged buyout, LBO, is an acquisition of a company or a portion of a company with a considerable portion of loaned funds. The assets of the target company are used as collateral. Each leveraged buyout is unique in that companies have their own capital structure. The one characteristic that is common within each LBO is the use of financial leverage to complete the purchase of the target company. In order for a LBO to take place, an investor, private equity firms or financial sponsor is needed. In a typical LBO, the firm obtaining the company will finance the purchase with a mixture of debt and equity. A segment of the debt in a LBO is protected by the assets of the target company. New cash flows from the bought out business are then used to pay the debt from the buyout. Leveraged buyouts happen to companies of all sizes and in all different types of industries. However, some elements from possible target firms include; small debt loads, history of positive cash flows, a significant amount of tangible assets, the possibility of new management making improvements, and for valuation/stock price to be minimal. Debt financing is borrowing money from a source with the intent to pay back the principal plus an agreed upon interest. An advantage of debt financing is those who use it can maintain ownership. Corporate balance sheets typically use principal and interest payments as a business expense which can be deducted from income...
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...Finance 423 Spring 2014 T TH Financial Analysis and Management Dr. Kamal M. Haddad COURSE OBJECTIVES Fin 423 is designed to develop critical thinking at the individual level, and problem solving competencies at both the individual and group levels. Teamwork and group problem solving are stressed. The course provides a thorough overview of financial analysis, including relevant modern theory and practical applications. Topics include financial statement analysis, financial planning, principles of valuation, capital budgeting, capital structure, and issues in financial policy. The course gives students opportunities to apply financial theory to analyze real life situations in an uncertain environment with an incomplete data set. It is integrative in nature, with special attention to the integration of theory and managerial judgment in the process of making financial decisions. BSBA Goals BSBA students will graduate being Effective Communicators, Critical Thinkers, Able to Analyze Ethical Problems, Global in their perspective, and Knowledgeable about the essentials of business. This class contributes to those goals through its student learning outcomes. LEARNING OBJECTIVES * Use Financial Statements to evaluate firm performance. * Project Financial Statements (B/S, I/S, budgets,...
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...tly A sk ed Fr equen in s Question orporate C FinanCe io, a llocch ur izio D uiry, M a lv i Pa sc a l Q tonio Sa Le Fur , A n Ya nn From the team behind Pierre Vernimmen’s % = Corporate FinanCe + 3 Frequently Asked Questions in Corporate Finance Frequently Asked Questions in Corporate Finance Pierre Vernimmen, Pascal Quiry, Antonio Salvi, Maurizio Dallocchio and Yann LeFur A John Wiley & Sons, Ltd., Publication This edition first published in 2011 Copyright 2011 Pierre Vernimmen Registered office John Wiley & Sons Ltd, The Atrium, Southern Gate, Chichester, West Sussex, PO19 8SQ, United Kingdom For details of our global editorial offices, for customer services and for information about how to apply for permission to reuse the copyright material in this book please see our website at www.wiley.com The rights of Pierre Vernimmen, Pascal Quiry, Antonio Salvi, Maurizio Dallocchio and Yann LeFur to be identified as the authors of this work have been asserted in accordance with the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, except as permitted by the UK Copyright, Designs and Patents Act 1988, without the prior permission of the publisher. Wiley publishes in a variety of print and electronic formats and by print-on-demand. Some material included with...
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...A Blueprint for Corporate Governance Fred R. Kaen AMACOM AMERICAN MANAGEMENT ASSOCIATION A Blueprint for Corporate Governance This Page Intentionally Left Blank A Blueprint for Corporate Governance Strategy, Accountability, and the Preservation of Shareholder Value Fred R. Kaen American Management Association New York • Atlanta • Brussels • Buenos Aires • Chicago • London • Mexico City San Francisco • Shanghai • Tokyo • Toronto • Washington, D. C. Special discounts on bulk quantities of AMACOM books are available to corporations, professional associations, and other organizations. For details, contact Special Sales Department, AMACOM, a division of American Management Association, 1601 Broadway, New York, NY 10019. Tel.: 212-903-8316. Fax: 212-903-8083. Web site: www.amacombooks.org This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Library of Congress Cataloging-in-Publication Data Kaen, Fred R. A blueprint for corporate governance : strategy, accountability, and the preservation of shareholder value / Fred R. Kaen. p. cm. Includes bibliographical references and index. ISBN 0-8144-0586-X 1. Corporate governance. 2. Corporate governance—United...
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...Fourth Edition Reframing Organizations Artistry, Choice, and Leadership LEE G. BOLMAN TERRENCE E. DEAL B est- se l l i n g a u t h o rs of LEADING WITH SOUL FOURTH EDITION Reframing Organizations Artistry, Choice, and Leadership Lee G. Bolman • Terrence E. Deal Copyright © 2008 by John Wiley & Sons, Inc. All rights reserved. Published by Jossey-Bass A Wiley Imprint 989 Market Street, San Francisco, CA 94103-1741—www.josseybass.com No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, 978-750-8400, fax 978-6468600, or on the Web at www.copyright.com. Requests to the publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, 201-7486011, fax 201-748-6008, or online at www.wiley.com/go/permissions. Credits are on page 528. Readers should be aware that Internet Web sites offered as citations and/or sources for further information may have changed or disappeared between the time this was written and when it is read. Limit of Liability/Disclaimer...
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