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Ford Selling Hertz

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Ford close to sale of Hertz rental car unit, executives say
Friday, September 09, 2005

By Dee-Ann Durbin, The Associated Press

DETROIT -- Ford Motor Co. is close to selling its Hertz Corp. rental-car division, a move that would help the struggling automaker raise cash, two executives familiar with the negotiations said Thursday.

Ford is expected to sell Hertz to one of two competing groups of corporate buyout firms, but hasn't yet selected which one, according to the executives, who requested anonymity because the deal isn't yet complete. Hertz could sell for as much as $15 billion.

A Ford spokeswoman wouldn't comment on the deal Thursday morning.

Ford is expected to announce its decision as early as Friday, one of the executives said.

Two groups of firms are competing for Hertz. One is made up of The Carlyle Group, Clayton, Dubilier & Rice and Merrill Lynch & Co., while the other is made up of Bain Capital, Blackstone Group, Texas Pacific Group and Thomas H. Lee Partners.

Ford shares fell 21 cents to close at $9.92 Thursday on the New York Stock Exchange.

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Ford sold Hertz today for $5.6 billion.

Ford Motor Co. said on Monday it would sell its rental subsidiary Hertz Corp. to a private equity group for $5.6 billion, allowing the auto maker to strengthen its finances as it struggles with stiffening competition and rising costs.


Ford plans to sell all of its Hertz shares to a private equity group composed of Clayton Dubilier & Rice, Carlyle Group and Merrill Lynch Global Private Equity.

Including debt, Ford valued the transaction at $15 billion, and said it expected the deal to close by year end.

"It's a moderate plus to their finances," said David Healy, an analyst at Burnham Securities. "Hertz has become kind of a noncore operation for them, a much less important outlet."

The company can use the cash to fund new model initiatives and healthcare liabilities, said Healy, who does not own shares of Ford.

The acquisition is another sign of the increasing influence of private equity firms, an investor group that has been a formidable player in the mergers world as investors dump cash into the funds, attracted by their strong returns amid a sideways stock market.

Ford Chairman and Chief Executive Bill Ford Jr. said in April that the automaker planned to spin off or sell Hertz to improve liquidity and move away from noncore businesses. In June, Hertz filed for an initial public offering.

But buyout firms swooped in on Ford, giving the company a more compelling offer. By selling to buyout firms, Ford gets cash faster than waiting for an IPO, and takes out the risks associated with the IPO market.

Clayton Dubilier & Rice, Carlyle, and Merrill beat out a competing offer from private equity bidders Bain Capital, Blackstone Group, Texas Pacific Group and Thomas H. Lee & Partners, according to several sources close to the deal.

CD&R, Carlyle and Merrill will split the investment evenly. CD&R Partner George Tamke, the former CEO of Emerson Electric, will serve as chairman of Hertz's board -- a sign of respect for Tamke's expertise and for CD&R's initiation and pursuit of the deal, which began three years ago, said the firm's CEO Donald Gogel.

"This is a high cash flow business and a market leader with one of the best consumer and corporate brand names," Gogel said.

Private equity firms are attracted to strong cash flows, which they use to pay down the debt used in financing deals.

Ford shares rose 1 percent to $10.02 in after-hours trade on the Inet electronic brokerage, after closing up 2 cents at $9.92 on Nasdaq.


Ford -- which slashed its profit forecast twice this year -- is struggling with strong competition, soaring health-care and raw material costs, and a slide in U.S market share. Ford's key North American auto operations swung to a pretax loss of $1.21 billion, including charges, in the second quarter.

The automaker is also under heightened pressure to cut costs, especially after its credit ratings were downgraded to junk status.

Ford acquired Hertz in 1994, then offered 18.5 percent of its shares for public sale on the New York Stock Exchange in 1997. Ford repurchased Hertz shares in 2001.

Hertz plans to commence a cash tender offer for up to $2.3 billion of certain of its outstanding debt securities, while certain other Hertz debt will be refinanced, the company said.

J.P. Morgan Securities Inc., Citigroup Global Markets Inc. and Goldman, Sachs & Co. acted as financial advisors to Ford, and Simpson Thacher & Bartlett LLP acted as the company's legal advisor.


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