It seems that Hertz Global Holdings, Inc.’s (HTZ) decision last week of adopting a one-year shareholder right plan to prevent itself from a hostile takeover by activist investors was taken at the right time. On Jan 3, CNBC reported that billionaire activist investor, Carl Icahn, has acquired 30–40 million shares or 6%–9% stake in the largest publicly traded U.S. rental-car company. The business TV broadcaster also revealed that the acquired stake is in the form of common shares and derivatives.
Following the news bulletin, the company’s shares soared to a record high of $29.81, which is the highest price since its initial public offering in Nov 2006. However, thereafter the price fell and the stock closed at $28.50, 0.6% lower than the closing price as on Jan 2. Over the one-year span, Hertz shares rose 69.6% primarily driven by its improving prospects, making competition tough for its peer Avis Budget Group, Inc. (CAR) that surged 95.1%.
As per CNBC, Carl Icahn is not the only activist investor interested in the vehicle rental company. Earlier, the television channel had revealed that Dan Loeb’s Third Point LLC and activist investor, Keith Meister's Corvex Capital bought some stake in the company. However, in total, their stake lies below 5%.
As per data compiled by Bloomberg, Wellington Management is the biggest shareholder of Hertz with approximately 9.2% interests in the company as of Sep 30, 2013.
Observing these “unusual and substantial” activities in its shares, we acknowledge Hertz’s decision to adopt the one-year shareholder right plan to restrain from a possible takeover. As per the plan, the company is entitled to issue one preferred share purchase right for each outstanding common share after the close of business on Jan 9, 2014. The rights will be exercisable only when a person or group acquires 10% of the company’s common stock. However, for institutional investors, the exercisable limit is 15%.
The shareholder right plan, also known as poison pill, reduces chances of gaining control over a company by any person or group through accumulation of shares in the open market without appropriately compensating shareholders.
Hertz expects the above plan to facilitate increasing of shareholder value through the execution of strategic initiatives. The company’s long-term strategic initiatives include the integration of Dollar Thrifty, expansion of the off-airport footprint, introduction of new brands catering to consumer needs, rollout of the new rental technology and the company's Lean cost management programs. Apart from this, Hertz is considering a revision in its operating structure and capital allocation to drive long-term growth.
At present, this leading airport car rental brand in the U.S. with presence at 120 major airports in Europe holds a Zacks Rank #5 (Strong Sell). However, some better-ranked stocks in the same industry include SouFun Holdings Ltd. (SFUN) and Core-Mark Holding (CORE). While SouFun has a Zacks Rank #1 (Strong Buy), Core-Mark carries a Zacks Rank #2 (Buy).