Are the Masters of the Universe* finally getting in trouble?
Nov. 10 (Bloomberg) -- Hertz Global Holdings Inc. share sale may raise less money than the company planned because potential buyers are balking at further enriching the current ownership group after it paid itself a $1 billion dividend.
Clayton Dubilier & Rice Inc., the Carlyle Group and Merrill Lynch & Co. plan to sell as much as $1.83 billion of shares in the world's largest rental car company Nov. 15. Proceeds will go toward paying off the loan that funded the dividend and for a second disbursement of $426.8 million.
The underwriters may have to reduce the amount of stock offered, lower the per-share price or delay the sale, said John Fitzgibbon, founder of ipoScoop.com in Jersey City, New Jersey.
``It's a really tough sale,'' he said in an interview today. His company tracks initial public offerings.
Hertz spokeswoman Paula Rivera declined to comment. Goldman Sachs Group Inc.'s Michael DuVally, Lehman Brothers Holdings Inc.'s Torie von Alt and Merrill spokeswoman Terez Hanhan declined to comment. The firms are underwriting the sale. Merrill is a passive minority investor in Bloomberg LP, the parent company of Bloomberg News.
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``These buyers are helping themselves to a pound of flesh from a company with decent cash flow before moving on,'' said Ben Holmes, publisher of Morningnotes.com in Boulder, Colorado. ``Hertz was profitable before the buyout. This year they will lose money.''
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In the IPO prospectus, the owners said their interests may conflict with those of new shareholders. ``The owners seem to be paying themselves, and the market is aware of it,'' said Salvatore Morreale, a trader who watches IPOs at Cantor Fitzgerald & Co. in Los Angeles.
Share sales such as Hertz that enrich private equity firms have historically sold without much problem, said David Menlow, president of ipofinancial.com in Millburn, New Jersey. Investors have been ``forgiving,'' buying the stock knowing that the private firms were being enriched at the expense of the company.
`Doesn't Mean You Should'
``At Hertz, a lot of lines have been crossed,'' he said. ``There's been nothing illegal, but just because you can do something doesn't mean you should.''
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It's good to see that buyouts/sell-backs like these are finally being scrutinized. Too often, it's only the bankers that come out ahead in these things.
* is reference to [link|http://en.wikipedia.org/wiki/The_Bonfire_of_the_Vanities|Tom Wolfe's book].
Cheers,
Scott.
