How Hertz went from bankruptcy to buying 100,000 Teslas

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The last Monday in October, Hertz said it placed an order of $ 4.2 billion for 100,000 vehicles from You’re here to be added to its rental fleet by the end of 2022. The public response was immediate. Hertz shares jumped 10%. Tesla shares climbed nearly 13%. The deal was widely seen as a big win for both companies. CNBC described it as a ‘tipping point’ that could bring the car rental industry into a new ‘era of climate change’.

But was there really a deal after all? This week, Elon musk tweeted that Tesla had not signed a contract with Hertz. Bickering fears have swayed the stock prices of the two companies.

Soon after, however, those fears eased. A spokesperson for Hertz publicly confirmed the order and said Tesla deliveries have already started. The real question, it seems, is whether the 100,000 vehicles will actually arrive in the next 14 months: The Wall Street Journal reported that the two sides are still “working out the details” of a specific delivery schedule.

In the end, then, it looks like Hertz has indeed put together a transformational deal. Regardless of any communication glitches, this deal is the latest step in a remarkable recovery for the company – a one-of-a-kind story of lockdowns, memes stocks, bankruptcies and car shortages. And now you can add Musk to the mix.

Founded in 1918 in Chicago, Hertz was for many decades a major player in the US rental car industry, generating billions of dollars in revenue each year. Those billions, however, depended on the travel of the company’s customers. When the pandemic arrived, that journey came to a halt and problems ensued.

At the end of April 2020, Hertz was short of rents on its fleet. May 18, Catherine Marinello resigned as CEO. Four days later, on May 22, the company filed for Chapter 11 bankruptcy, posting $ 18 billion in debt. Soon after, a famous activist investor Carl Icahn sold its entire 39% stake in Hertz for just 72 cents a share, suffering a loss of $ 2 billion.

Then a funny thing happened. Retail investors have started flocking to Hertz shares. Some were motivated by the belief that the Hertz brand could eventually sell enough to restore shareholder value. Some were motivated by pure speculation. Whatever the reason, the result was that Hertz shares climbed 1000% in the space of two weeks, from 59 cents per share to $ 5.50.

Hertz tried to capitalize. In June, in a highly unusual move, the bankrupt company announced plans to sell up to $ 1 billion in new stock, while warning investors that “common stock could ultimately be worthless.” She managed to raise $ 29 million before the SEC intervened. The memes craze started to fade. In October, the NYSE officially delisted Hertz, relegating the company to the realm of penny stocks.

Smart Money ridiculed those retail investors who were pumping money into a failing company. But it turned out that these retail investors were on to something. Global car shortages (caused largely by global chip shortages) have driven used car prices soar in the second half of 2020; Hertz took advantage of this by selling hundreds of thousands of vehicles, nearly a third of its global fleet. When travel resumed faster than expected, those same car shortages allowed Hertz and rivals to rent for their remaining inventory at sky-high rates – over $ 300 a day in some cities.

When Hertz started looking for new investments to help the company come out of bankruptcy, there was no shortage of suitors. A multitude of private equity firms have surrounded the firm, including Warburg pincus and Centerbridge Partners. A bidding war developed, and when the dust settled in May, the winners were Capital of the Knights Management and Certificate management, which agreed to provide Hertz with some $ 5.9 billion in new capital while reducing its debt by $ 5 billion. The deal also provided for owners of Hertz shares to receive up to $ 8 per share – a shocking victory for retail investors who had flocked to Hertz a year before, and a demonstration of how the nature of the stock market has changed in the meme. -stocks era.

Hertz officially emerged from Wisconsin Bankruptcy on July 1 and its shares began trading over-the-counter at $ 22 a share. Soon it will revert to a real stock market: Hertz filed an IPO on the Nasdaq last month. And now the company will embark on this public debut supported by a lot of buzz and with a lot of new Teslas en route to its network of locations.

As of Friday’s close, Hertz stock was trading at $ 34.39 per share, giving the company a market cap of over $ 16 billion. It is a spectacular rise to the brink of death. When you’ve got that kind of comeback to celebrate, Elon Musk can quibble over delivery times whatever he wants.

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