Consortia drives away with Hertz

Clayton Dubilier & Rice, Carlyle and Merrill Lynch Global Private Equity have completed the world’s second-biggest leveraged buyout by agreeing to pay vehicle maker Ford US$15bn for Hertz, its global vehicle hire company. The buyout shops will pay US$2.3bn in equity for equal stakes in the company and use US$5.3bn in bank debt and US$7bn in securitised loans. The winning consortium beat competition from a rival private equity group comprising Texas Pacific Group, TH Lee, Bain Capital and Blackstone.

George Tamke, a CD&R operating partner, will serve as Hertz’s chairman. Tamke said: “The company’s underlying strengths – an exceptional global brand, premium pricing supported by superior customer service and a history of industry innovation – form a strong platform on which to pursue further growth initiatives.”

Founded in 1918, Hertz posts more than US$7bn in annual revenues and has been profitable recently, the company said, from its 7,000 locations in the US and 150 foreign countries.

Ford opted to take a dual-track approach, meaning that in June when it filed a registration statement with the SEC for a Hertz IPO, Ford also made it clear that it would accept an offer to buy the subsidiary whole.

A public listing for the car rental company allowed Ford to establish a price in the open market. The IPO was sized at US$100m, though a much larger offering had been expected. This is a strategy increasingly coming into play as would-be vendors become aware of the appetite among sponsors for assets.

The investor group was advised by Deutsche Bank, Lehman Brothers and Merrill Lynch, with Debevoise & Plimpton providing legal counsel. JP Morgan, Citigroup and Goldman Sachs acted for Ford, with Simpson Thacher & Bartlett as its legal adviser.