Hertz IPO is latest private-equity flotation

By Yung Kim

NEW YORK, Nov 10 (Reuters) - Less than a year after private equity
funds bought Hertz Global Holdings Inc. (HTZ.N: Quote, Profile,
Research), the world's largest car rental company is on track for one of
the largest U.S. stock flotations of the year.

Private equity investors, whose appetite for acquisitions is fueling a
surge in overall M&A activity, have been shortening the time between
leveraged buyouts and the initial public offerings they often use to cash
out on the deals.

Firms are also boosting offering sizes after paying themselves larger
dividends and loading up with debt.

"When you have so much money in these deals, it increases the
pressure to an enormous degree to get liquidity," said Tom Taulli,
founder of InvestorOffering.com. "Investors are pushing for faster
turnarounds and the deals are becoming flips as opposed to
investments."

ML Global Private Equity Fund LP, an affiliate of Merrill Lynch (MER.N:
Quote, Profile, Research), and buyout firms Carlyle Group and Clayton
Dubilier & Rice bought Hertz from Ford Motor Co. (F.N: Quote, Profile,
Research) last December for $5.6 billion, or $15 billion including debt.
Park Ridge, New Jersey-based Hertz, which also has one of the largest
equipment rental businesses in the United States, is scheduled to float
about 88 million shares on Wednesday, or about 27.5 percent of the
company, according to a prospectus filed with the Securities and
Exchange Commission.

COULD BE NO. 2 U.S. IPO

The company could raise more than $1.8 billion if the shares price at the
top of a $16 to $18 forecast range and overallotment options are
exercised. The company would also be valued at about $5.8 billion.

At an $18 share price, Hertz would be the No. 2 U.S. IPO this year after
the $2.6 billion float of credit card association MasterCard (MA.N: Quote,
Profile, Research).

At that price, Hertz would trade at 57 times annualized earnings, based
on current earnings which are depressed by debt service payments,
according to Francis Gaskins president of IPO Desktop, a research
firm based in Marina del Rey, California.

Actual earnings would be higher once the IPO proceeds are used to pay
down debt, making for a smaller price-earnings ratio.

Still, Hertz's valuation looks lofty compared with rivals Dollar Thrifty
Automotive Group Inc. (DTG.N: Quote, Profile, Research) and Avis
Budget Group, Inc. (CAR.N: Quote, Profile, Research), which trade at
about 17 and 16 times earnings respectively, according to Reuters
Estimates.

The Hertz investors are set to reap a paper gain of nearly $4 billion on
$2.3 billion they invested less than a year ago.

The three firms will also receive a special dividend of up to $642 million
from Hertz if the deal prices at the midpoint of the range and the
underwriters exercise their option to sell 13 million additional shares.

In June, the investors used a $1 billion loan and cash on hand to pay a
$999.2 million dividend to current stockholders.

MIXED RESULTS

Private equity-backed IPOs have turned in mixed results this year
Burger King Holdings Inc. (BKC.N: Quote, Profile, Research), which
private equity bought in 2002 for about $1.5 billion, went public in May.
After a slight initial gain from a $17 offering price, shares slid as low as
$12.41 in August. Shares have since rebounded and closed Friday at
$17.84.

A consortium of investors won a heated auction for drug maker Warner
Chilcott Holdings Company Ltd. (WCRX.O: Quote, Profile, Research) in
2004 with a $3 billion bid.

In September, the company priced shares at $15, below the forecast
range and ended its first day on the market flat. Share prices have fallen
since, closing Friday at $13.

Some private equity backed deals have done better.

Newspaper publisher GateHouse Media Inc. (GHS.N: Quote, Profile,
Research), rose as much 20 percent in its market debut in October after
an $18-a-share pricing and closed Friday at $21.09.

Taulli said the Hertz IPO could not be better timed, with a bustling IPO
market, but it pushes the envelope in terms of size and the short time
between the buyout and the IPO.

"But if the IPO goes off very well, it makes it easier to get other private
equity mega-deals done," he said