March 6, 2013
Car rental company Hertz Global Holdings (NYSE: HTZ ) announced a secondary offering of 60 million shares after close of trading on Wednesday. Unfortunately for investors, the company itself will collect not a penny of the more than $1.2 billion expected to be raised by such a sale.
Why not? Because every single share being offered is a share currently owned by major shareholders -- investment funds associated with Clayton, Dubilier & Rice, The Carlyle Group (NASDAQ: CG ) , and Bank of America (NYSE: BAC ) . In at least two instances -- two funds owned by Bank of America/Merrill Lynch -- these investors will be cashing out their entire stakes in Hertz.
With Hertz shares up 40% over the past 52 weeks, it's not surprising that insiders would want to take some profits from their investment. Nevertheless, the fact that insiders are dumping such a large number of Hertz shares on the market -- about 14.2% of shares outstanding -- is likely to depress the share price until the wave of selling has passed.
In an attempt to mitigate this effect, Hertz says it will repurchase about two-fifths of the offered shares itself -- 23.2 million shares -- and then use the entirety of the shares bought back to pay off its convertible debt. With more than $490 million in cash on its balance sheet, the company should have no problem accomplishing this, and the net effect should be that Hertz's cash balance will go down, but its debt load will go down in tandem.
Shareholders are accordingly taking the share offering news in stride. After rising 0.4% in daytime trading, Hertz shares are flat after-hours.
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