It Hertz new investors more than the old ones

For background on this see Squeeze 'em 'til it Hertz.

Hertz Initial Public Offering Raises $1.32 Billion (Update2) (By Carol Wolf and Elizabeth Hester)

Hertz Global Holdings Inc., the world's biggest car-rental agency, raised $1.32 billion in an initial share sale, less than it planned as investors balked at enriching the owners who paid themselves a $1 billion dividend.

The lower price reduces the proceeds for owners Clayton Dubilier & Rice Inc., the Carlyle Group and Merrill, who had sought to raise as much as $1.59 billion from the sale after acquiring Hertz less than a year ago. Investors had questioned the quick turnaround as well as debt refinancing and dividend payments that allowed the owners to double their investment.

Most of the money raised will go to funding the first dividend. The lower IPO price may reduce a second dividend of about $420 million that the owners were scheduled to receive.

The ownership group bought Hertz from Ford Motor Co., the second-largest U.S. automaker, in December for $15 billion. Excluding $9.4 billion of assumed debt, the price was $5.6 billion and the ownership group put up about $2.3 billion of that amount.

The group also arranged new debt and refinanced existing debt at higher interest rates. Total debt increased 32 percent to $14 billion. Interest expense almost doubled to $672.6 million. Betsy Snyder, a fixed-income analyst with Standard & Poor's in New York, said the company paid higher rates on the new debt.

Hertz IPO a huge payday

But analysts warn that investors who buy shares of Park Ridge-based Hertz Global Holding Inc. will have to cope with a company whose earnaings have plunged in recent months, in part because of a soaring debt load to fund big payouts to the owners.

There also are indications Hertz may have to pay Ford and other carmakers substantially more for new cars in the coming years to keep its fleet current.

Such a quick and highly profitable flip is turning off some investors, analysts say.

"There are going to be some investors that are going to be hesitant to buy the company after they've levered it up to get a dividend," DeStefano said. "People will wonder how much value they added."

Hertz revenues from car rentals worldwide and equipment rentals in North America rose 7.8 percent to $6.1 billion in the first nine months of 2006. But its net income fell almost 77 percent to $76.1 million during that period from a $325.3 million a year earlier. The main culprit: an almost doubling of interest paid on debt to $672.6 million in this year's first nine months.

Car rental businesses historically have relied on sweet deals on cars from manufacturers, which not only sell them cars at a discount, but also buy back used vehicles.

But with major restructuring at companies like Ford and General Motors Corp., the carmakers are signaling those deals may be ending.

"Certain car manufacturers, including Ford, have adopted strategies to de-emphasize sales to the car rental industry which they view as less profitable due to historical sales incentive and other discount programs that tended to lower the average cost of cars for fleet purchasers such as us," Hertz said in a filing with the Securities and Exchange Commission.

So, did you happen to buy into the Hertz IPO? Have you checked your mutual or other fund holdings? Do you have any idea what your fund managers are doing with your money?