Hertz Team, Ford Agree to Buy Car Rental Firm From Allegis in $1.3-Billion Deal
Hertz, the nation’s largest car rental firm, will be sold by the Allegis holding company for $1.3 billion to an investment group made up of top Hertz management and the Ford Motor Co., Allegis announced Friday.
The announcement of the sale by Allegis, which also owns United Airlines, came just four days after Avis Inc., the second-largest U.S. auto rental firm, was sold to its employees.
Frank A. Olson, chairman and president of Allegis, heads the group buying Hertz and will leave Allegis when the sale of the auto rental firm is completed, but not before Allegis appoints a new chairman. A veteran of nearly 25 years with Hertz, Olson was elected head of Allegis earlier this year after Chairman Richard J. Ferris was ousted by the board of directors.
When Olson, a 37-year veteran of the rent-a-car industry who began his career working as a night station manager at the San Francisco airport, took Allegis’ top job, he remained chairman of Hertz.
“It is not surprising that Olson is going with Hertz,” Louis Marckesano, an airline analyst with the Philadelphia brokerage of Janney Montgomery Scott, said Friday. “That’s where his heart lies.”
The entity made up of Ford and the Hertz managers that is purchasing Hertz is named Park Ridge Corp. The deal, subject to a definitive agreement and regulatory approvals, is expected to be completed by next week, David N. McCammon, vice president and controller of Ford, said.
Airlines observers said the fact that Olson is leaving Allegis must mean that the corporation is close to naming a successor to run the airline. Former astronaut Neil Armstrong heads a search committee seeking a new leader for Allegis.
The corporation, formerly named UAL Inc., was once mainly an airline company but then diversified, buying Hertz and the Westin and Hilton International hotel chains. After it changed its name to Allegis earlier this year and announced that it intended to be a diversified travel company, the directors rebelled in June and ousted Ferris.
They named Olson as chairman and said they would sell Hertz and the hotel chains and return to being an airline company. The corporation, they said, would then be renamed United Airlines Inc. Allegis sold Hilton International last month to a British concern and now, with the sale of Hertz, has only Westin left to dispose of. It hopes to sell Westin by the end of the year.
High on the list of names of potential successors to Olson as head of the restructured Allegis is William R. Howard, former chairman of Piedmont Airlines. He has been retained by the United Airlines pilots union, which is seeking to purchase the airline.
The pilots, like the directors, became unhappy with Allegis management after it became clear that the airline was no longer the major focus of the corporation’s attention and support. Under Howard’s leadership, the pilots are pressing ahead with their effort to buy United even though Allegis has rejected their offers and despite the corporation’s plan to refocus on the airline.
The proceeds from the Hertz transaction, combined with those from the sale of Hilton International and Westin, will be distributed to Allegis shareholders as a special dividend. The shareholders will also receive ownership of stock in United Airlines after the Allegis name is scrapped.
Higher Price Than Predicted
Analysts predicted that the one-time payout would range between $60 and $75. The new shares of United Airlines are expected to be traded at first at around $60. Allegis stock closed Friday on the New York Stock Exchange at $102.25, up 75 cents.
The analysts also said Allegis got a good price for Hertz. According to Marckesano, it had been predicted that the rent-a-car firm would go for only about $850 million. When United Airlines bought Hertz two years ago, it paid RCA Corp. $550 million.
By far, the largest investor in the transaction announced Friday is Ford. According to a public relations spokesman for Ford, the auto manufacturer will provide $1.2 billion of the purchase price. But Ford’s investment may be only temporary, McCammon, the vice president and controller, said in a telephone interview Friday. He said the auto maker’s “ongoing objective” will be to “reduce its investment in Hertz.”
“The Olson group came to us this week and asked us if we would assist in a leveraged buyout,” McCammon said. “Ford assisted Hertz’s management in this acquisition in order to retain and enhance its strong relationship with Hertz.”
That relationship is massive. Hertz is the world’s largest purchaser of vehicles and is Ford’s largest single customer. Through local dealers, Ford sells between 65,000 and 70,000 vehicles to Hertz annually in the United States and another 15,000 abroad.
McCammon said a number of potential investors have expressed interest in joining Ford and the Hertz management in ownership of the car rental firm. But he indicated that there was no time to make such arrangements before Friday’s announcement.
Haste had been required to enable Olson and his group to achieve control of Hertz and keep others from doing so, the Ford official indicated. Allegis formally closed the bidding for the auto rental firm earlier this week. It said then that there was a large number of bidders and that it was looking for the highest price.
Until Ford reduces its ownership to a minority position, McCammon said, Hertz will be part of Ford’s financial services division. The division also includes First Nationwide Financial Corp., a major savings and loan firm, and Ford Motor Credit, which provides financing for new car and truck purchases.
Follows Avis Sale
Hertz, founded in Chicago in 1918, has a fleet of 350,000 cars that it rents from more than 4,700 locations--owned and franchised--throughout the world. It rents 20 million cars a year and has about 33% of the U.S. car rental market, compared to Avis’ 25%.
Avis was sold Monday for about $1.75 billion to the company’s employee stock ownership plan, which includes the 11,000 Avis employees based in the United States.
Edward J. Bobit, publisher of Automotive Fleet magazine of Redondo Beach, Calif., said Avis is being sold for a higher price than Hertz because Hertz owns fewer of its rental locations than Avis. Both firms have some locations that are owned and operated by franchisees.
TOP CAR RENTAL FIRMS
By revenue 1. Hertz $1.6 billion 2. Avis 1.1 billion 3. Budget 1.0 billion 4. National 888 million 5. Dollar 353 million 6. American Int’l 319 million 7. Alamo 310 million 8. Enterprise 250 million 9. Thrifty 225 million 10. Agency 161 million
By cars in fleet 1. Hertz 350,000 2. Avis 330,000 3. National 180,000 4. Budget 156,000 5. Dollar 90,000 6. American Int’l 61,000 7. Alamo 50,000 8. Enterprise 39,000 9. Thrifty 31,000 10. Agency 28,500
By number of locations 1. Hertz 5,700 2. Avis 3,900 3. Budget 3,209 4. National 3,000 5. Dollar 1,700 6. American Int’l 1,557 7. Thrifty 625 8. Rent A Wreck 375 9. Enterprise 260 10. Carey 227
Source: CMP Publications 1987 Business Travel Survey
