Ford to Sell Hertz for $5.6 Billion

Ford Motor Co., aiming to focus more on building cars and trucks, said Monday that it would sell its Hertz Corp. rental car business for $5.6 billion in cash.

Dearborn, Mich.-based Ford, the nation’s second-biggest automaker, said it would sell all shares of common stock in Hertz, its wholly owned subsidiary, to a private equity group including Clayton Dubilier & Rice, the Carlyle Group and Merrill Lynch Global Private Equity in a deal valued at about $15 billion, including debt.

Ford announced in April that it was considering shedding Hertz, which it has owned since 1994, to concentrate on its core automotive business.

The infusion of cash should help the automaker, which has been struggling with falling sport utility vehicle sales, growing U.S. healthcare costs and other issues.

Ford’s second-quarter profit fell 19% to $946 million.

“This transaction reinforces our commitment to strengthening our balance sheet and investing in our core automotive business,” said Don Leclair, Ford’s chief financial officer.

The deal is subject to regulatory approvals and is expected to be completed by year-end.

Hertz plans a cash tender offer for as much as $2.3 billion of outstanding debt securities in connection with the transaction; certain other Hertz debt will be refinanced.

In addition, Ford Motor Credit Co., the automaker’s finance arm, said it intended to file a registration statement to exchange its own debt securities for as much as $2.4 billion of outstanding Hertz debt with similar terms. Such an exchange could generate cash for Ford Motor Credit.

The transaction also involves an additional $4.7 billion in Hertz debt, a Ford spokeswoman said.

Burnham Securities analyst David Healy called the deal “a reasonable move” for Ford, which he said could certainly use the additional cash to enhance new product development and offset rising healthcare expenses.

Still, Hertz is the world’s largest general-use car rental business. It has been a solid contributor to Ford’s bottom line, with revenue of $6.7 billion and net income of $365.5 million in 2004.

Ford shares rose 2 cents to $9.92 before the deal was announced. Ford stock added 4 cents in after-hours trading.