Is A Proxy Fight On The Horizon For Hertz?

Hertz Global (HTZ) could be seeing some changes soon. Activist investor Carl Icahn announced that he may seek board representation and hedge fund Fir Tree Partners has called for the removal of Hertz CEO Mark Frissora - all on the same day that Hertz filed an 8-K withdrawing its financial guidance for the year. Hertz's share price took a major hit in response, opening at just $27.55 on Wednesday after closing at $31.56 the day before.

INVESTMENT THESIS

Shares in Hertz rebounded somewhat on Thursday, hovering around $30, but things could change quickly for the $13.48 billion market cap rental agency chain. Hertz is a weak company - even before all this, its one year target estimate is just $28.78 - but a change in management could help the company turn things around. Icahn's involvement is a strong benefit to the cause. Buy in low now for long term growth.

A VERY BUSY WEEK AT HERTZ

Icahn disclosed Wednesday that he had an 8.48% stake in the rental company and may seek board representation. Icahn said in his regulatory filing related to the same that he believes Hertz to be undervalued and "to have discussions with representatives of [Hertz's] management and board of directors relating to shareholder value, accounting issues, operational failures, underperformance relative to its peers and the Reporting Persons' lack of confidence in management."

On the same day, Hertz said that it was withdrawing financial guidance for the fiscal year in a 8-K filed with the SEC. According to that filing, Hertz said that it "expects to be well below the low end of its 2014 guidance due to operational challenges in the rental car and equipment segments as well as the associated costs related to the accounting review previously disclosed. These ongoing challenges include:

  • Record level, industry-wide OEM vehicle recall activity, which has constrained the Company's U.S. fleet available for rent;

  • Significantly higher-than-expected adjusted direct operating expense in U.S. rental car;

  • Issues and delays associated with the installation of its Enterprise Resource Planning (ERP) and counter systems, which have adversely impacted anticipated synergy capture flowing from the Dollar Thrifty acquisition; and

  • Continued soft demand in the equipment rental business segment.

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