Hertz Global Holdings (HTZG.Q) has attracted a lot of attention from activist investors. Currently on the firm's shareholder roster are noted boardroom gadflies Fir Tree Partners, Jana Partners, and capitalism's dark prince, Carl Icahn.
These entities have not only secured large chunks of the company, they've also infiltrated the boardroom. Earlier this month, three Icahn associates were named as directors of Hertz.
A tight market
At the end of the day, in spite of their self-justifying rhetoric, activist investors are like the rest of us -- they buy shares in companies in order to make a buck. And Hertz is a juicy candidate for several reasons.
First, the American car rental market is essentially an oligopoly, with three companies controlling the vast majority of it. Thanks to a wave of consolidation in recent years, Avis Budget Group (CAR 1.78%), Hertz, and privately held Enterprise Holdings were responsible for a combined 93% of the total number of US rental cars in service in 2013. Hertz alone held 25%.
But that hasn't translated into an accelerating share price. Over the past year, the performance of Hertz stock -- particularly when matched against the race car that is arch-rival Avis -- has been sluggish and uninspiring. The market doesn't seem very impressed that Hertz is one of the only three real players in the business.
Engine trouble
It also doesn't appear to be captivated by Hertz's fundamentals. Which aren't bad at all... when the company actually releases them, that is. More on this in a moment.
Its last reported set of figures saw it post revenue of $10.8 billion in fiscal 2013, nearly 20% higher on a year-over-year basis. The improvement in net profit was even more pronounced; it zoomed ahead by 45%, to $346 million from the previous year's $239 million.
But we don't know how the firm has done since then, nor how accurate those 2013 numbers are. Hertz has been postponing its Q1 and Q2 figures for months now, apparently due to a continuing internal review of its finances. When that review is finalized, the company will have to restate earnings stretching back to 2011.
No matter how well a company is doing, inability to spit out quarterly results in a timely way spooks investors and keeps a stock price down. And a price-dampened, very possibly undervalued, stock attracts activists.
Heavy equipment
Also likely drawing the big-pocket guys to Hertz is the looming spin-off of its equipment rental business ("HERC" in company parlance). In spite of the apparent similarity between car and equipment renting -- i.e., the leasing of large machines -- some argue that the two are not really compatible, and value can be "unlocked" by separating them.
Equipment and cars target two different types of customers, so the argument goes, making it difficult to find synergies between the pair. Also, the former is relatively capital-intensive; one estimate has it that after a split, a stand-alone car rental unit would save something on the order of $250 million planned for equipment leasing in 2014 alone.
Everybody Hertz
Hertz's activist investors have had no small influence on the company. Earlier this year, the firm's board heeded that call to separate into two companies. This will see existing stockholders receive shares in HERC in a spin-off, with the firm optimistically expecting this to be completed at the beginning of next year.
And in early September, CEO Mark Frissora stepped down from his post, following calls (particularly from Fir Tree Partners) for the company to get rid of him. His interim replacement was Brian MacDonald, the head of the equipment rental division.
That brings up the question of who will be MacDonald's successor following the spin-off. No matter who gets the nod, you can bet that Icahn and the rest of the activists will have a good deal of influence on that decision.
