The Hertz Corporation has announced that its board of directors has approved plans to separate into two independent, publicly traded companies. The two companies will be "Hertz," comprised of the Hertz, Dollar, Thrifty and Firefly rental car businesses as well as Donlen, a provider of fleet leasing and management services, and "HERC," the Hertz Equipment Rental Corporation. The separation is planned to be in the form of a tax-free spin-off to Hertz shareholders, and the Company has received a Private Letter Ruling from the Internal Revenue Service that allows Hertz to separate the businesses in a tax-efficient manner. Hertz expects the separation of HERC to close by early 2015.
Hertz will receive net cash proceeds from a HERC spin-off of approximately $2.5 billion that will be used to pay down Hertz debt and support a newly approved $1 billion share repurchase program. Under the new share repurchase program, the majority of the shares are likely to be purchased following the HERC separation, dependent on market conditions. The share repurchases could reach 20% of Hertz's outstanding shares of common stock, which includes the $1 billion already approved. This new program replaces the $300 million share repurchase program that the Company announced in 2013, under which the Company has utilized approximately $87.5 million to repurchase Hertz shares.
Post separation, Hertz expects to maintain a target net corporate leverage ratio of between 2.5x to 3.5x net debt / EBITDA.