Hertz Global Holdings
shares surged 31% on Monday, rising $2.10 to $8.85, after hitting a new 52-week high of $8.90 ahead of the company’s expected emergence from bankruptcy protection on June 30.
There was no apparent news to account for the gain. Shares of rival
Avis Budget Group
(ticker: CAR) declined $2.54, to $78.21.
Barron’s wrote favorably on Hertz (HTZGQ) this past weekend, arguing that the stock appeared inexpensive relative to Avis and that the company stood to benefit from greater financial and operational flexibility once it emerges from Chapter 11. Hertz couldn’t be reached for comment on Monday.
The three dominant rental car companies, Hertz, Avis, and the private Enterprise are having a blockbuster summer thanks to strong domestic demand and a vehicle shortage that is leading to high pricing. Bulls are betting that industry pricing discipline will last into 2022 as the vehicle shortage begins to ease.
Hertz shareholders are due to receive a package of cash, 3% of the stock in the reorganized company, and warrants—a long-term call option—to buy 18% of the stock in the reorganized company. Hertz now has 156 million shares outstanding, valuing it at about $1.4 billion.
The newly reorganized Hertz is expected to have about 472 million shares outstanding and the stock could trade at close to $14, giving it a market value of around $6.5 billion. The price of nearly $14 would equate to the strike price of warrants of about $13.80.
Current Hertz holders are due to get $1.53 a share in cash, an estimated 14 million shares of new stock (nearly a tenth of a new share per current Hertz share), and almost two-thirds of a warrant per current share. The warrants will have a 30-year maturity, making them valuable. The warrants are expected to be the most valuable part of the package for current Hertz shareholders.
The complexity of the package and the particulars of the Hertz’s emergence from bankruptcy are confusing many investors. It is expected that the effective date of the Chapter 11 plan will be June 30 and that the record date will also be June 30 for Hertz shareholders to get the package of cash, stock and warrants.
The new stock and warrants in the reorganized Hertz are expected to begin trading on Thursday.
An investor group led by Knighthead Capital, Certares Management, and
Apollo Global Management
(APO) won a bidding contest for Hertz in bankruptcy court and will buy at least $3 billion of new equity in Hertz.
“Our plan for Hertz is to invest heavily in modernizing the company’s technology and improving the customer experience,” Greg O’Hara, a senior managing director and founder of Certares told Barron’s. “For example, we believe that wait times can be dramatically reduced with an eye to completely eliminated.”
“ Investments like demand forecasting, car telematics, and better mobile integration are immediate ways we can improve operations. Certares will bring expertise where others can’t because our travel investment portfolio provides us with unique access to data and demand. Along with a right-sized capital structure and favorable economic tailwinds, we can turn Hertz—which has always had a strong brand—into a stronger company as well.”
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