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Bidding For Hertz: Leveraged Buyout
Chaplinsky, Susan; Marston, Felicia C. Case F-1560 / Published February 17, 2008 / 19 pages.
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Product Overview

This case and its companion, UVA-F-1561, were awarded the 2012 Wachovia Award for Excellence in Teaching Materials - Innovative Case. In August 2005, The Carlyle Group and its partners (Clayton, Dubilier & Rice, and Merrill Lynch Global Private Equity) must finalize the terms of a bid to purchase the Hertz Corporation. The Ford Motor Company had put Hertz, a wholly owned subsidiary, up for sale in April 2005, and in June 2005, entered a dual-track process, which would result in its sale or an initial public offering (IPO). The case provides detailed pro forma projections for the transaction that allow students to examine the synergies of the deal and estimate a value and bid for Hertz. Students must consider whether their bid provides an adequate return to the sponsors, can produce in a higher value for Hertz than an IPO, and can best that of a rival bidding group. The case is appropriate for use in courses on corporate finance, private equity, or deal valuation. Because of the rich range of issues that can be considered, the case also works well as a capstone case or in a case competition. For instructors wishing to provide students an overview of the role and practices of private equity, we recommend combining the Hertz LBO case with its companion case, "Investing in Sponsor-Backed IPOs: The Case of Hertz" (UVA-F-1561). The Hertz IPO was announced in July 2006 just seven months after the LBO was completed. The two cases cover a wide range of issues that arise over the course of entry and exit of private equity investments.

Learning Objectives

? To familiarize students with the process of leveraged buyouts ? To help students understand the sources of value creation in leveraged buyouts ? To help students develop skills in valuing potential LBO targets ? To examine the relationship among the value paid for a target, financing requirements, and the returns to buyout investors ? To assess how deal valuation and bidding strategy interact ? For use as a capstone case or a case competition.

  • Overview

    This case and its companion, UVA-F-1561, were awarded the 2012 Wachovia Award for Excellence in Teaching Materials - Innovative Case. In August 2005, The Carlyle Group and its partners (Clayton, Dubilier & Rice, and Merrill Lynch Global Private Equity) must finalize the terms of a bid to purchase the Hertz Corporation. The Ford Motor Company had put Hertz, a wholly owned subsidiary, up for sale in April 2005, and in June 2005, entered a dual-track process, which would result in its sale or an initial public offering (IPO). The case provides detailed pro forma projections for the transaction that allow students to examine the synergies of the deal and estimate a value and bid for Hertz. Students must consider whether their bid provides an adequate return to the sponsors, can produce in a higher value for Hertz than an IPO, and can best that of a rival bidding group. The case is appropriate for use in courses on corporate finance, private equity, or deal valuation. Because of the rich range of issues that can be considered, the case also works well as a capstone case or in a case competition. For instructors wishing to provide students an overview of the role and practices of private equity, we recommend combining the Hertz LBO case with its companion case, "Investing in Sponsor-Backed IPOs: The Case of Hertz" (UVA-F-1561). The Hertz IPO was announced in July 2006 just seven months after the LBO was completed. The two cases cover a wide range of issues that arise over the course of entry and exit of private equity investments.

  • Learning Objectives

    Learning Objectives

    ? To familiarize students with the process of leveraged buyouts ? To help students understand the sources of value creation in leveraged buyouts ? To help students develop skills in valuing potential LBO targets ? To examine the relationship among the value paid for a target, financing requirements, and the returns to buyout investors ? To assess how deal valuation and bidding strategy interact ? For use as a capstone case or a case competition.