Icahn doubles investment in Hertz as stock plummets
Car-rental company’s biggest shareholder gives embattled CEO big vote of confidence
After Hertz Global Holdings missed its earnings target by a long shot, investors dumped the rental-car company’s stock with one notable exception: Carl Icahn.
The 80-year-old billionaire, already Hertz’s biggest shareholder, more than doubled his stake in a show of support for the rental-car chain and by extension for the boss he helped bring to power two years ago. John Tague, a former executive of United Airlines, arrived as Hertz’s chief executive officer in late 2014, a few months after Icahn successfully fought to obtain three director seats.
Hertz’s split-adjusted shares have plummeted 70 per cent since then, including Tuesday’s 23-per-cent drop that erased $739 million (U.S.) in equity value. Tague is being vexed by some of the same problems as his predecessor; such as rising costs, changes in what travellers want to drive and lower used-car values.
He blamed rising depreciation costs and declining revenue for the third-quarter miss and told investors that 2016 earnings will be no more than a fifth of what it projected in August.
“I underestimated the depth and the breadth and the complexity of the transformation we are now undertaking at this company,” Tague told analysts on a conference call.
Hertz shares fell $8.04 to $27.70 on Tuesday and in early trading Wednesday had slipped an additional 2.5 per cent to $27.01. After the market closed yesterday, Icahn said in a filing that he boosted his stake to 33.77 per cent from about 15.6 per cent. He’s also one of the biggest holders of Herc Holdings Inc., the equipment rental company that sep- arated in June.
If Icahn’s latest investment is a show of faith, it isn’t universally shared.
“The problem is management,” said Maryann Keller, an independent consultant in Stamford, Conn., who sat on Dollar Thrifty Automotive Group Inc.’s board when it sold to Hertz in 2013.
“The company was dysfunctional under previous management. It chose a CEO who has no experience in the rental industry. They were bound to stumble.”
Stumbling might be an understatement. Estero, Fla.-based Hertz reduced its full-year earnings outlook to a range of 51 cents to 88 cents a share, after saying in August that it expected $2.75 to $3.50.
“This management is in the midst of a transformation of the company,” Hertz spokesperson Bill Masterson said. “The issues around vehicle values and pricing are industry issues” and are the same as those encountered two years ago, he said.
Bondholders are just as dismayed, with some questioning Hertz’s decision to go forward with bond sales in September without adjusting its forecasts. Investors who were reassured by earlier estimates clamoured for the notes, allowing Hertz to boost the U.S. deal to $800 million from a planned $500 million and get lower yields on both that sale and one for euro bonds.
After Hertz delivered the bad news, the dollar notes dropped 6.5 cents to 90 cents.
“At best, low style points for deal timing and disclosure,” Glenn Reynolds and Nathan Wenger of CreditSights wrote in a note on Tuesday.