JAT Capital and Hertz Global Holdings
During the fourth quarter of 2014, JAT Capital sold its stake in Hertz Global Holdings (HTZ). The $196-million position had represented 3.2% of the fund’s third-quarter portfolio.
Overview of Hertz Global Holdings
Established in 1918, Hertz Global Holdings is a leading car rental company with annual revenues of about $11.0 billion. The company has rent-a-car operations in roughly 11,500 corporate and licensee locations spanning more than 145 countries.
HTZ offers car rental services through four brands:
The company’s Hertz brand represents the largest airport rent-a-car service in the world. The brand maintains approximately 10,090 corporate and licensee locations. The Dollar and Thrifty brands have about 1,400 corporate and franchise locations.
HTZ’s main competitors are Avis Budget Group (CAR) and Enterprise Rent-A-Car.
Since 1965, HTZ has been serving the construction and industrial sectors through Hertz Equipment Rental Corporation (or HERC). This business competes with United Rentals (URI).
HTZ reports its wholly owned subsidiary Donlen Corporation as part of its other operations. Donlen offers fleet leasing and management services.
Delay of spin-off
In March 2014, HTZ announced that it had received approval from its board to separate its equipment rental operations through a tax-free spin-off to shareholders, thereby forming two independent, publicly traded entities:
- car rental business and Donlen
The separation would allow both companies to focus better on their core strategies by aligning priorities, allocating resources more efficiently, and unlocking potential value for shareholders in the future. HTZ would receive about $2.5 billion from the HERC spin-off. The company planned on using the money to repay debt and support its share repurchase program.
HTZ had expected the spin-off to close in early 2015, but accounting irregularities identified in June 2014 have delayed the completion of the spin-off indefinitely. HTZ intends to fix these errors and come out with restated financials for the previous three fiscal years. At present, the review of HTZ’s previous-year financials is still ongoing.
Flat 4Q14 revenues
Due to the ongoing accounting review, Hertz came out with limited operating disclosure for the fourth quarter. The company’s consolidated revenues were essentially flat in 4Q14 over the prior-year quarter at $2.5 billion. While HTZ’s car rental operations reported flat revenues (excluding currency effects), international car rental operations witnessed a 5% decline in revenue due to unfavorable currency effects. Revenue growth in the equipment rental and fleet leasing businesses partially offset this. HTZ expects earnings before interest, tax, depreciation, and amortization (or EBITDA) at the lower end of its guidance range of $1.30 billion to $1.45 billion.
HTZ is a component of both the Vanguard Mid-Cap ETF (VO) and the Vanguard Extended Market ETF (VXF), making up 0.31% and 0.25% of these funds, respectively. HTZ also makes up 0.62% of the iShares Morningstar Mid Core ETF (JKG).
In the next article, we’ll discuss JAT Capital’s decreased position in Melco Crown Entertainment (MPEL).