Hertz Shares Offered to the Market
STEVE INSKEEP, host:
The business news starts with a sale so big, it hurts.
The Hertz rental car company is going public this day. This deal is expected to bring a huge windfall to the company's owners. The sale is raising eyebrows on Wall Street and highlighting the growing role of private equity firms. They can extract enormous profit out of companies that they own for just a short time.
NPR's Jim Zarolli reports.
JIM ZAROLLI: It's one of the most talked-about initial public offerings of the year. But the owners may not be too happy about that. It was only last December that the Ford Motor Company sold Hertz to a consortium that included the private equity firm The Carlyle Group. Since then, the owners have hired new management but Standard and Poor's analyst Betsy Snyder says not much else has changed.
Ms. BETSY SNYDER (Analyst, Standard and Poor's): Let's just say the operations are pretty similar to what they were before.
ZAROLLI: What has changed, Snyder says, is that with new owners the company had to re-finance a lot of its debt at higher interest rates, which has cut into the bottom line. Despite that, the new owners paid themselves $1 billion dividend in June. The proceeds from today's stock sale will go to pay that dividend and Snyder says any money left over will also go to the new owners.
Ms. SNYDER: So none of the proceeds are really going to be going into the company.
ZAROLLI: Hertz's owners declined to comment for this story because of federal regulations that limit public remarks about upcoming stock sales. Critics say Hertz's owners are among a growing number of private equity firms that buy and flip existing companies. And in the process, extract huge profits and fees and dividends that can saddle a company with debt, which can hurt other shareholders and employees down the road.
Of course, if investors don't buy Hertz's stock, the new owners won't get any money, so they're bearing considerable risk themselves. David Menlow, of the research firm IPO Financial.com, says a lot of investors are looking askance at the deal.
Mr. DAVID MENLOW (President, IPO Financial.com): People just feel, if we're going to buy 88 millions shares of Hertz and its IPO, we want that $1.5 billion to go directly to the company, not to the private equity firms.
ZAROLLI: For that reason, Menlow says, there are some doubt right now that the Hertz's IPO will net as much for the company's owners as they're expecting.
Mr. MENLOW: The Hertz offering is really a question of how you spell the name. H-E-R-T-Z or H-U-R-T-S.
ZAROLLI: But with stock prices hitting record highs, the market for initial public offerings is strong. And that is probably one of the big reasons why Hertz's owners are plowing ahead with the sale after owning the company for less than a year.
Jim Zarolli, NPR News, New York.
NPR transcripts are created on a rush deadline by Verb8tm, Inc., an NPR contractor, and produced using a proprietary transcription process developed with NPR. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.