WSJ: Hertz Shares Pop Post Poison Pill
The Wall Street Journal
Dec 31, 2013
Shares of the Hertz jumped nearly 10% on the last day of 2013, after the rental-car company announced that its board of directors had adopted a one-year plan to keep investors from gaining outsize influence over the company’s strategic direction.
Under this plan, known as a poison pill, no shareholder can take control of more than 10% of Hertz’s shares without engaging the board of directors.
The company, in a regulatory filing, said it did this in response to “unusual and substantial activity” in its shares. Hertz also noted that it has been talking to several shareholders about ways to “enhance shareholder value.”
CNBC reported that the activist firms Corvex Management and Third Point were among the firms pushing for changes at Hertz. Third Point declined to comment. Neither Corvex nor Hertz returned requests for comment.
Corvex owns roughly 2.6 million shares of Hertz or less than 1%.
Hertz has been a popular destination for hedge-fund investor in 2013. According to Capital IQ, hedge funds held roughly 27% of the company’s shares as of Sept. 30. Other hedge funds holding the stock as of Sept. 30 include York Capital, Senator Investment Group, Valinor Management and Owl Creek.
“The story at Hertz was so ready-made for an activist investor that lots of hedge funds appeared to be waiting for someone to file a 13-D to take this to the next level,” said Don Bilson, head of event-driven research at Gordon Haskett Research Advisors.
The story for possible activist investors is a so-called sum of the parts one. Mr. Bilson said that activists and investors overall see the potential for Hertz to spin-off its equipment rental business, which accounts for roughly $1.5 billion of the company’s $10.5 billion in annual revenues.
In doing so, Hertz could add debt to the balance sheet of that business and use that capital to buy back shares or pay dividends. With that business separated from Hertz’s car rental business, Hertz could then focus on its core business, Mr. Bilson said.
Pushing for breakups of this sort has been a popular tool of activists investors this year.
Hertz’s CEO Mark Frissora hinted earlier this month that he was weighing possible alternatives for the business when the car company brought in Thomas Kennedy, the former CFO of Hilton, as its new chief financial officer. (Mr. Kennedy’s jump to Hertz in early December was surprising to many market watchers as Hilton was just about to go public).
In a Dec. 2 release, Mr. Frissora said that Mr. Kennedy’s experience would be “invaluable” as the company “evaluate[s] strategic options and future capital deployment strategies going forward.”
This year, Hertz has been busy integrating Dollar Thrifty, the rental car company it acquired in 2012 for $2.5 billion, after a prolonged battled with its competitor Avis.
With Tuesday’s nearly 9% rise in Hertz’s shares, the company’s stock is on track to gain more than 70% in 2013.
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