The Case of Hertz Questions Note: calculations are only needed in answers to question 4. 1. In leveraged buyouts (LBOS) companies are purchased with a high degree of leverage. In the case of Hertz, of $14.9bn paid by Carlyle, CD&R and Merrill Lynch Global Private Equity ("the Bidding Group"), $12.5bn was financed by debt. Discuss the main advantages and disadvantages of such high leverage. (Identify 1-2 main advantages and disadvantages.) 2. What is the purpose of the IPO? Contrast to the purpose of conventional IPOs. Can you name a recent IPO with a similar purpose? (Briefly explain why the IPO you named is similar). 3. In June 2006, Hertz borrowed $1bn to pay a special dividend. Why the money was not used to invest in Hertz's growth? Can such a transaction generate value for Hertz's shareholders? If yes, how? 4. At the $15 offer price, does the Hertz IPO represent a good investment opportunity for Berg? (Hint: use valuation based on comparable firms (relative valuation approach from FMV). What are the closest peers?) 5. In your opinion, did the Bidding Group create value for Hertz?