Earlier this week Ford completed it’s sale of its Hertz rent-a-car business to Clayton, Dubilier & Rice, The Carlyle Group and Merrill Lynch Global Private Equity. The formal press release is below, but we thought you’d find the history between the two companies interesting.

The relationship between Ford and the #1 rental car agency goes way back (remember the GT350 Shelby Hertz cars?) Established in 1918 by Walter Jacobs in Chicago, the company started with a fleet of 12 Model T Fords. In 1923 John Hertz, president of Yellow Cab company, bought Hertz with the intention of expanding its operations. With over $1 million dollars in revenue per year already, they opened an agency at Chicago’s Midway airport in 1935. Today Hertz has 7000 locations worldwide and brings in $25 billion in revenues.

Ford took its first Hertz stake in 1987 and by 1994 owned the company outright. In 1997 it sold off 19% of Hertz in an initial public offering at $24. It still owned roughly 81%. The stock boomed, hitting as high as $64 in under two years. Then it tanked during the market bust and sat back around $24 in 2000. Ford then bid $30 to buy out the public shares it did not own. Eventually a deal was struck at $35.50 per share. The company then became a wholly owned subsidiary of Ford.

However Ford has been struggling, as have all US automakers. With Ford’s stock (NYSE:F) now under $8 and Ford bonds being given a “junk-bond” rating, the company is at risk of falling below it’s #2 automaker status. The sale of Hertz is a decision based on the need for cash in the bank to restructure the business and maintain position against the fast growing foreign automakers. In fact two days after the sale of Hertz Ford announced they had infused $2.1 billion into their ailing Jaguar division.

Fortunatley Ford and Hertz have announced a deal wherby Ford will sell continue to sell cars to Hertz through 2010. This gives plenty of time for the two companies to get back together.

December 21, 2005

Clayton, Dubilier & Rice, The Carlyle Group and Merrill Lynch Global Private Equity Complete $15 Billion Hertz Acquisition

New York – Clayton, Dubilier & Rice, Inc. (CD&R), The Carlyle Group (Carlyle) and Merrill Lynch Global Private Equity (MLGPE) announced today that they have completed the acquisition of The Hertz Corporation (Hertz) in a transaction valued at $15 billion. Hertz, formerly a subsidiary of Ford Motor Company (NYSE: F), is the world’s largest vehicle rental organization and through its Hertz Equipment Rental Corporation (HERC) is one of the leading equipment rental companies in North America.

George W. Tamke, a CD&R Operating Partner, and Chairman of the Hertz Board of Directors, said on behalf of the investor group, “We are very proud to be associated with one of the most recognized brands in the world. With a track record of innovation, an intense focus on customer service and a deep and experienced management team, Hertz is well positioned to sustain its leadership in a very attractive market.”

With the completion of the transaction, Hertz will have a capital structure with $2.3 billion in equity contributed in approximately equal amounts by affiliates of CD&R, Carlyle and MLGPE. It will also have $5.6 billion of corporate debt as well as $4.8 billion of U.S. fleet debt, and $2.1 billion of international fleet debt. Mr. Tamke added: “The capital structure that has been put in place for Hertz will provide significant flexibility for the company, and will allow the business to build on the very strong foundation that has been established.”

Financial advisors for the investor group were Deutsche Bank AG, Lehman Brothers, Inc., Merrill Lynch and Co. Inc., The Goldman Sachs Group, Inc., JP Morgan Case Co., BNP Paribas, Royal Bank of Scotland Group PLC and Calyon. Debevoise & Plimpton LLP served as legal advisor.
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