Hertz Global Holdings Inc. has announced that its board of directors has unanimously adopted a one-year shareholder rights plan due to observations of unusual and substantial activity in the company's shares. The rights plan is intended to ensure that the board remains in the best position to perform its fiduciary duties and to enable all Hertz shareholders to receive fair and equal treatment..
The plan is also designed to allow all Hertz shareholders to realize the long-term value of their investment by reducing the likelihood that any person or group would gain control of Hertz through open market accumulation without appropriately compensating the Company’s shareholders for such control or providing the board sufficient time to make informed judgments.
This latest news comes on the heels of recent reports that Hertz Corp. is considering the sale of Hertz Equipment Rental Corp. (HERC), and has engaged Bank of America Merrill Lynch and Barclays for advice on improving shareholder returns. Reportedly some shareholders and hedge funds have urged the company to unload Hertz Equipment Rental Corp. despite its profitability.
According to a report in the Financial Times and sources close to the situation, equipment rental accounted for $1.1 billion of Hertz Corp.’s $8.2 billion in revenue for the first nine months of 2013, and $207 million of its $1.3 billion in adjust pre-tax profit.
Some activist investors have apparently pressured Hertz to unload the equipment rental business, stating that the company’s free cash flow profile would increase. Hertz plans an internal review of the equipment rental business, exploring possible options. The situation is viewed as a challenge for new chief financial officer Tom Kennedy who joined the company last month after leaving Hilton Worldwide.
Hertz board and management team are focused on enhancing shareholder value, and the board believes the Rights Plan will preserve the Company’s ability to continue implementing its strategic initiatives to drive improved returns and value creation. These initiatives include the integration of Dollar Thrifty, expanding Hertz’s off-airport footprint, the introduction of new brands to meet consumer needs, building on the Company’s success with Donlen leasing, the roll-out of new rental technology, the Company’s Lean cost management programs, and the evaluation of potential changes to the Company’s operating structure and capital allocation to further support the Company’s long-term strategy.
While it is the Company’s policy not to comment on specific discussions with shareholders, the Company has had dialogue with a number of shareholders and welcomes their input towards the goal of enhancing shareholder value.
The Rights Plan, which was adopted following evaluation and consultation with the Company’s outside advisors, is similar to plans adopted by numerous publicly traded companies and was not adopted in response to any specific takeover bid or other proposal to acquire control of the Company.
Pursuant to the Plan, Hertz is issuing one preferred share purchase right for each current share of common stock outstanding at the close of business on January 9, 2014. Initially, these rights will not be exercisable and will trade with the shares of Hertz’s common stock.
Under the Rights Plan, the rights will generally become exercisable only if a person or group acquires beneficial ownership of 10 percent or more of the Company’s common stock (15 percent or more in the case of passive institutional investors filing on Schedule 13G as described in the Rights Plan). In that situation, each holder of a right (other than such person or members of such group, whose rights will become void and will not be exercisable) will be entitled to purchase, at the then-current exercise price, additional shares of common stock having a value of twice the exercise price of the right.
In addition, if after a person or group acquires 10 percent or more of the Company’s common stock (15 percent or more in the case of passive institutional investors filing on Schedule 13G as described in the Rights Plan), the Company merges into another company, an acquiring entity merges into the Company or the Company sells or transfers more than 50% of its consolidated assets or earning power, then each right will entitle its holder to purchase, for the exercise price, a number of shares of common stock of the person engaging in the transaction having a then-current market value of twice the exercise price.
In all cases, rights held by any person or group whose actions trigger the Rights Plan would become void and not be exercisable.
The Company’s board of directors may redeem the rights for $0.001 per right at any time before an event that causes the rights to become exercisable.
Details about the Rights Plan will be contained in a Form 8-K to be filed by Hertz with the U.S. Securities and Exchange Commission.