Hertz Confirms Monday's Market Chatter and Announces Spin-off Plans

On Monday various media reports speculated that

will spin-off its construction rental business. On Tuesday, Hertz put an end to speculation and confirmed its intentions to spin-off its equipment rental business for $2.5 billion. "The actions announced today will create separate companies which we expect to benefit from improved financial profiles that include increased earnings stability and higher returns on capital," said Mark P. Frissora, Chairman and Chief Executive Officer of The Hertz Corporation. The spin-off will split the company in to two independent, publicly traded companies. Hertz will comprise of Hertz, Dollar, Thrifty and Firefly rental car businesses as well as Donlen, a provider of fleet leasing and management services. “HERC,” or Hertz Equipment Rental Corporation, will compromise of the company's equipment rental division. The spin-off will be tax free to Hertz shareholders and the company expects the separation to close by early 2015. Hertz will use part of the $2.5 billion proceeds from the split off to fund a $1 billion share repurchase program which could reach 20 percent of the company's outstanding shares of common stock. This new authorization will replace a $300 million share repurchase plan the company approved in 2013. The company will also reduce some of the debt it holds.

Hertz also reported its fourth quarter results on Tuesday morning. The company announced an EPS of $0.26, missing the consensus estimate of $0.31. Revenue of $2.55 billion missed the consensus estimate of $2.62 billion. Net income fell to $121.1 million in the quarter from $139.1 million in the same quarter last year, partially due to higher expenses related to carrying extra fleet.