The Hertz Corporation

Private Equity

Session 3

The Hertz Corporation - Case Questions

© 2013 Viney Sawhney

© 2013 Viney Sawhney

The Hertz Corporation (A)

Questions

� CD&R pursued Hertz for three years only to find itself facing an auction and a complicated deal. Is it worth it?

� What are the primary sources of value in the transaction?� Operating changes?� Financing changes?

� Capitalize each:� Operating changes worth $2+ billion� Financing changes worth similarly large amount

� Couldn’t Ford do this for itself? Why or why not?

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© 2013 Viney Sawhney

The Hertz Corporation (A)

Questions - continued

� Examine the deal structure. Why separate Fleetco and Opco?

� Valuation� First understand how to compute “Corporate EBITDA”� Understand derivation of “After-tax Levered Free Cash Flow”� Understand derivation of Equity Cash Flows� Value the equity cash flows compared to price paid

� Compare the ECF valuation to IRR calculations typically performed by PE firms including CD&R

� How much should CCM bid on September 5?

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© 2013 Viney Sawhney

The Hertz Corporation (B)

Questions� Why has CD&R chosen to rely so heavily on

ABS financing for the acquisition of Hertz?

� Compose a broader list of alternatives CCM should consider at this point: � Should they consider backing out of the deal with

Ford?� If not under what set of (worse) circumstances would

you recommend such a course?

� How should CD&R plug the funding gap?

� What happened� Pre-closing? � Post-closing?

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