Bidding Group Case Study

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Register to read the introduction… - Hertz’s off airport growth strategy had resulted in losses, but the Bidding Group would look to rationalize this strategy.

- U.S. RAC’s non-fleet CAPEX as a percentage of sales were higher than Avis’s long-term CAPEX levels.

- Europe RAC’s SG&A as a percentage of sales and on a per day basis were 3 times higher than in the U.S..

- HERC’s reflected an inefficient use of capital

Financial synergies were identified by the Bidding Group where there were several sources of financing value, most notably in debt that could be backed by Hertz’s fleet of rental cars asset backed securitized debt (ABS). Not was ABS debt less expensive, but it also provided more flexible financing arrangements that allowed for the debt to increase and decrease with fleet
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The first assumption on the income statement expected car-rental growth to slow down and stabilize at 4.5% at the year 2009. This is a realistic assumption the Bidding Group has made, because it unrealistic to expect car-rentals to continue to grow at the current rate. In addition, the Bidding Group also assumed that even though the equipment rental market would rebound, Hertz’s equipment rental would decline over time and settle at 3% by 2010. Again, this is a fair assessment of Hertz by the bidding group, because equipment rental growth at Hertz’s has been the most variable. Lastly, the bidding group had to make assumptions about the statement of cash flows. Here, the Bidding Group had to estimate a beta and through similar industry performers they settled on 1.5. While this may be a fair assumption depending on what the Bidding Group is comfortable with, there was a wide range used to make the beta estimates. This beta estimate will have the biggest impact on return because of the effect it has on pricing Hertz’

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