Hertz IPO Is a Payday for Turnaround Firms

The Hertz rental car company is going public today. The deal is expected to bring a huge windfall to the company's owners. The Hertz IPO has raised eyebrows because of the expected payout for the private equity firms handling the deal and because of the short period of time they have owned the company.

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One of the most talked about initial public offerings of the year has turned into something of a letdown. Shares of the car-rental company Hertz Global Holdings went on the market today, but prices stayed flat. As NPR's Jim Zarroli reports, investors may have balked at the large profits the owners took in the deal.

JIM ZARROLI: This has been a big year for IPOs, with more than 60 new offerings since Labor Day, and Hertz first projected shares would sell for $16 to $18. But as the IPO approached, demand turned out to be weaker than expected, and the company was forced to lower than to $15. John Fitzgibbon heads the research firm, IPOScoop.com.

Mr. JOHN FITZGIBBON (IPOScoop.com): The buyers weren't there. So, what do you do when something isn't moving? Hey, Macy's will tell you. You mark it down.

ZARROLI: Prices drifted higher today, but there wasn't the big bump up that can make IPOs so lucrative. The Hertz deal has been the subject of considerable skepticism. The owners, a consortium of private equity firms led by the Carlisle Group, had taken the company public after owning it just 11 months. In that time, they refinanced the company's debt at a higher interest rate and paid themselves a dividend of $1 billion.

They also stand to make at least $300 million more from today's sale, even with the less than impressive stock performance, and they will hold on to some 70 percent of the company's stock, an amount worth $3.9 billion. Betsy Snyder is a credit analyst at Standard & Poor's.

Ms. BETSY SNYDER (Credit Analyst, Standard & Poor's): And this is a company that the owners invested, I think, $2.2 billion in equity in last December. So, you're talking about a very nice return in less than a year for the owners.

ZARROLI: She says the owners have added to the company's debt load since acquiring it, without really making any significant change in operations. In an industry with low profit margins and high capital costs, that may have been enough to scare some investors away. Hertz officials declined to comment on today's results, citing federal regulations that limit public remarks during stock offerings. Jim Zarolli, NPR News, New York.

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