columbia business school's pershing square challenge

(NYSE: HTZ)

Richard Hunt '14 ([email protected])

Stephen Lieu '14 ([email protected])

Rahul Raymoulik '14 ([email protected])

Investment Thesis – Multiple Drivers of Value

We recommend investors buy Hertz (HTZ) stock with a

target share price of $36.00, which represents ~52% upside

from the current share price

Four Main Points to Investment Thesis

The market significantly underestimates the impact of

Hertz's recent merger with Dollar Thrifty, which marks the

completion of a ten-year consolidation that dramatically

improves the competitive dynamics of the industry

The market underestimates the levers Hertz can pull to

counter the negative impact of falling used car prices

Hertz has strong revenue growth opportunities in the U.S.

and will realize significant revenue and cost synergies

through its acquisition of Dollar Thrifty

Divestiture of non-core Equipment Rental business would

unlock substantial value by deleveraging the balance sheet

2

As of 4/19/13; in USD m except per share data

Stock Price $23.72

Diluted Shares Outstanding (M) 462.0

Market Cap $10,959

Corporate Debt 6,545

Cash (1,105)

Unfunded Pension Liability 227

Enterprise Value $16,626

52-Week Range $10.22-$24.28

Dividend Yield 0.0%

Avg. Daily Volume (M) 7.7

Short Interest as % of Float 11.0%

2013e 2014e

EV / Revenue 1.5x 1.4x

EV / EBITDA 7.4x 6.4x

P / E 12.5x 9.9x

Current Capitalization

Trading Statistics

Summary Valuation

Business Overview

Car Rental (2012 rev: $7.6bn): Operates through the

Hertz, Dollar and Thrifty brands. Rents cars that the

company owns or leases. Maintains a substantial network of

car rental locations both in the United States and

internationally, and the largest number of airport car rental

locations in the world

Equipment Rental (2012 rev: $1.4bn): Operates through

HERC brand. Rents a broad range of industrial, construction

and material handling equipment. Also sells new equipment

and consumables. One of the largest equipment rental

companies in North America

3

Business Description Rental Locations

Revenue Breakdown

With the acquisition of Dollar Thrifty, the Company has

over 10,000 locations across the United States and 17

other countries

International Countries

Puerto Rico France Slovakia

U.S. Virgin Islands Germany United Kingdom

Canada Italy China

Brazil Luxembourg Australia

Belgium Netherlands New Zealand

Czech Republic Spain

Segment Geography

U.S. Intl Total

Staffed rental locations 3,210 1,215 4,425

Airport 642 304 946

Off-airport 2,568 911 3,479

Non-staffed locations 1,360 150 1,510

Total Corporate 4,570 1,365 5,935

Franchised / Licensee 4,335

Total Locations 10,270

Car

Rental

85%

Equip

ment

Rental

15%

United

States

70%

Intl

30%

Consolidation Improves Industry Competitive Dynamics

4

Pricing Environment Already Improving

Hertz's acquisition of Dollar Thrifty marks the

completion of an industry consolidation that,

over the past ten years, has gone from six

separate rental car companies to only three

today

The three remaining players now have incentive

to focus on profitability instead of market share

Focus Shifted to Profitability Industry Consolidation

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

199

9

200

0

200

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200

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200

7

200

8

200

9

201

0

201

1

201

2

Enterprise Hertz

Avis Dollar / Thrifty

National / Alamo Budget

Other

$25

$35

$45

$55

$65

Jan

Feb

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r

May Jun

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v

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2013

Market Underestimates Improved Pricing Environment

5

“We made a strategic decision to minimize our

participation with less profitable commercial accounts.”

– Hertz CEO in February 2013

Overly Conservative Pricing Guidance Strong Pricing Environment w/ Price Signaling

“We're seeing our competitors move for profitability, rather

than share, and that has a positive impact on all of us.”

– Avis CFO in February 2013

“We've been very aggressive in initiating price increases

over the last 4 months or so and I think that's had a

positive impact. And we've seen a fairly good matching of

increases by both Hertz and the Enterprise.”

– Avis CFO in March 2013

Impact of Pricing on Valuation

“On pricing, it's very conservative assumptions where we

really don't try to assume any price increases in our

models.”

– Hertz CEO in April 2013

1% increase in U.S. RPD results in a 6% increase in share

price

Management's revenue and EPS guidance assumes no

pricing growth

Sell-side analyst consensus estimates assume a 1% increase

in pricing

“One of the headlines I'd like to make is we don't want to

gain share by reducing price. We want to gain share by

increasing value, and that's how we're doing it.”


0.0% 1.0% 2.0% 3.0% 4.0% 5.0%

2014e EBITDA $2,610 $2,734 $2,859 $2,985 $3,112 $3,239

2014e EPS $2.44 $2.62 $2.79 $2.96 $3.14 $3.31

Price Target $30.80 $32.88 $34.97 $37.08 $39.20 $41.34

PT % Increase 6.8% 6.4% 6.0% 5.7% 5.4%

Sensitivity to U.S. RPD Growth Y/Y

Misunderstood Impact of Used Car Prices

6

Hertz Does Not Track Manheim Index

105

110

115

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135

140

145

Jan-1

1

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-11

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-11

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11

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-11

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1

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11

Aug-1

1

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-11

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-11

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1

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-11

Jan-1

2

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-12

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Aug-1

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-12

Man

heim

Use

d C

ar

Valu

e In

dex

Manheim Index Hertz Residual Values

+10%

-3%

Non-Program Car Purchases Reduce Fleet Costs

Sharp Decline in Program Car Purchases: Since 2006,

the percentage of program cars purchased fell from 61%

to just 19% today. Program cars are repurchased by car

manufacturers for a specific price

Save 1% on auto purchase price

Allow for more profitable resale channels

Significant Shift Away from Auctions: Since 2009,

auction sales fell from 88% of non-program car sales to

just 33% today

Only Halfway Through this Successful Transition:

Depreciation per month should be flat (even if used car

prices fall) as fewer program cars are purchased and

more profitable channels are utilized

Strong Growth Opportunities in U.S.

12% share in a three-player market: Since 2006,

Hertz has increased its off-airport locations by more

than 60% and expects a 9.6% increase in 2013. It has a

significant opportunity to capture more share from the

insurance replacement market

Significant opportunity to expand Dollar Thrifty to

off-airport locations

7

Off-Airport Locations – 14% yoy Growth

Hourly Rentals – 30% yoy growth

Value Segment – 25% yoy Growth

Dollar Thrifty will capitalize on value trend: The value

segment is the fastest growing on-airport rental car market

with over 25% growth in 2012. We expect the Dollar

Thrifty brands to continue double-digit growth in 2013-

2014

Hertz On Demand (hourly rentals) will expand to 3,500

locations by Q3 2013: We expect little to no

cannibalization from the continued expansion of this

business

All of Hertz's ~500,000 U.S. vehicles will have On

Demand technology by the end of FY2014

24/7 Video Kiosks Increase Efficiency

Expands Hours to 24/7: Self-serve kiosks allows 24/7

rentals, which increases fleet utilization in a cost-effective

manner

Allows for Rapid Expansion of Off-Airport Network:

Asset-light model will increase returns on capital. Kiosks

make it significantly easier to move into body shops, auto

dealerships, and hotels

Significantly Reduces Labor Costs: Live agents

maintain a high-quality, personal experience for customers

in a cost-effective manner

Significant Synergies from Dollar Thrifty Acquisition

8

Revenue Synergies ~$300 million Cost Synergies ~$300 million

Leverage Global Partners: Hertz's travel partners such as

airlines, hotels, and AAA currently represent 30% of Hertz

revenue. These partners have strong interest in adding the

Dollar Thrifty brands. Lufthansa and AAA have already

started to offer all three brands

Europe Corporate Expansion: Dollar Thrifty currently

has no corporate locations in Europe. Hertz is adding Dollar

Thrifty to its European locations

Expand Off Airport: Hertz is adding the Dollar Thrifty

brands to the majority of its off-airport locations

Fleet: With the combined company, Hertz will see

savings from more efficient buying, selling, and

optimizing vehicle usage during ownership

IT: Savings driven by the roll-out of advanced

technology to Dollar Thrifty

Procurement: The combined company will see savings

from more efficient non-fleet purchasing

Financing, Other: DTG’s blended fleet interest rate is

4.9% while Hertz's is 4.0%. The combined company

will be able to command lower financing rates

Leverage

Global

Partners, 40%Europe

Corporate

Expansion,

37%

Expand Off

Airport, 17%

Other, 6%

Revenue Synergies $300M

Fleet, 40%

IT, 31%

Procurement,

15%

Financing,

Other, 14%

Cost Synergies $300M

HERC Divestiture – 20% Incremental Upside

9

HERC operates in an extremely cyclical and fragmented industry, follows an acquisitive growth strategy, and has caused a

chronic drag on Hertz's consolidated ROIC relative to the car rental business

We believe divesting HERC would be most prudent for the company as it would:

Significantly deleverage Hertz's balance sheet and help the company reach investment grade corporate debt rating sooner

Lower interest expense and unlock value by causing an immediate EPS accretion in the range of $0.14-$0.19 plus

additional value of $2.90 per share

Allow deployment of FCF towards a share buyback and/or dividend program

Allow Hertz management to focus solely on the core and higher-return car rental business, Dollar Thrifty integration, and

new growth areas

Allow HERC management to focus on growing the business organically and through acquisitions

Potential buyers of HERC include United Rentals, Sunbelt Rentals, and private equity firms

“We've always maintained

the position that if there

was a reason to divest it

that was shareholder

friendly, we're not resistant

to looking at other things

and other variables in

terms of the equipment

rental business.”

– Hertz CEO in

February 2013

Proceeds from Sale of HERC Before Divestiture Sale Spinoff

HERC EBITDA (2014e) $675 After-Tax Proceeds $0 $3,820 $2,836

x EV/EBITDA 6.2x Long-term debt (2013e) 6,184 2,363 3,348

Pre-tax proceeds $4,187 Total Debt / EBITDA 2.6x 1.2x 1.7x

Cost Basis 3,140 Interest Expense 340 83 117

Gain on Sale 1,047 Blended Cost of Debt 5.5% 3.5% 3.5%

Tax on Gain 366 Fleet Interest 343 300 300

After-Tax Proceeds $3,820 Fleet Interest Rate 4.0% 3.5% 3.5%

Decrease in Interest Expense 300 266

Proceeds from Monetizing Spin-off ∆ Net Income less income from HERC 87 65

HERC EBITDA (2014e) $675 ∆ EPS $0.19 $0.14

x Debt / EBITDA 4.2x Forward P / E 12.5x 12.5x

After-tax proceeds $2,836 Increase in Value per Share from ∆ EPS $2.35 $1.75

Remaining Value to Shareholders 1,350

Remaining Value per Share 2.90

Total Value to Shareholders $2.35 $4.65

Valuation Analysis

10

Hertz currently trades at 7.4x forward

EV/EBITDA versus its pre-crisis average

of 8.5x

On a forward P/E basis, Hertz currently

trades at 12.5x

This is a significant discount relative

to its historical average forward P/E of

14.0x and pre-crisis average of 15.4x

Based on an average of P/E, EV/EBITDA

and SOTP analysis, we arrive at a target

share price of $36 or +52% upside to

today's share price

Divestiture of HERC would lead to

incremental 20% upside

Methodology Target Price

($ millions except per share) Base Bear Bull Street

FY2014 Estimates

Car Rental EBITDA $2,413 $1,828 $2,727 $2,143

Equipment Rental EBITDA 509 432 539 453

Consolidated EBITDA $2,922 $2,261 $3,266 $2,596

EPS $2.87 $1.90 $3.39 $2.38

Target Forward Multiples

P/E 12.5x 11.0x 13.0x 12.5x

EV/EBITDA 7.4x 6.0x 8.0x 7.4x

SOTP: Car Rental 7.4x 6.0x 8.0x 7.4x

SOTP: Equipment Rental 6.2x 5.0x 6.5x 6.2x

Price per Share

P/E x EPS $35.93 $20.91 $44.06 $29.80

EV/EBITDA x EBITDA $36.73 $18.87 $46.90 $31.53

SOTP $35.41 $17.89 $45.16 $30.36

Target Price $36.00 $19.00 $45.00 $30.56

Upside (Downside) 52% (20%) 90% 29%

Key Assumptions

RPD CAGR (FY'12-'14) 2.5% (1.0%) 3.5% 0%-1%

Manheim Index CAGR (FY'12-'14) (3.0%) (5.0%) (2.0%) (2%)-(4%)

Chg. in Residual Value due to Channel Mix Shift $256 $0 $383 $125-$175

Cost Synergies (FY2014) $250 $150 $300 $300

Strong Management Team & Cash Returns

Strong management team with

laser focus on costs, returns,

and customer satisfaction

Sales per employee +6% and

operating margin +520bps

from 2008 to 2012

Management incentives are

aligned with shareholders

Changing incentives: increased

weighting of EVA reflects

structurally healthier company

and industry

Consistently conservative

guidance: Frissora has beaten

the high end of his guidance

every year except 2008

11

Key Management Cash Return to Shareholders

Elyse Douglas

Chief Financial Officer

Mark P. Frissora

Chairman & CEO

Strong FCF generation would allow Hertz to pay down

corporate debt and achieve target Net Debt/EBITDA ratio

of 1.6x by 2014

Management has repeatedly asserted that Hertz will return

cash to shareholders once it meets its target leverage ratio

We expect Net Debt/EBITDA to fall below 1.6x in 2014,

which should be followed by significant dividend and/or

share repurchase programs

Payout of 35% of FCF as share repurchase could

accelerate EPS growth by an incremental +6%

“There was one time when we had a customer complain to

corporate. Frissora happened to be in town that week and

showed up here unannounced in jeans and a sweater to

figure out with us a way we could resolve the issue.”

–Manager, Hertz Off-Airport Manhattan Location

Risks and Mitigants

12

A drop in global GDP or enplanements could materially impact Hertz's profitability

Hertz has been profitable through cycles. During phases of weak demand, Hertz sells down its fleet to cut

capacity and maintain stable pricing. In 2008 and 2009, Hertz reduced its fleet size by 1% and 10% and

earned $237 and $199 (EBT) respectively

We believe that Hertz's shift to off-airport locations, especially the non-cyclical insurance market, mitigates

this risk

Our expectations of a cooperative oligopoly could be incorrect

We believe that there is a high probability that Hertz, Avis, and Enterprise will avoid destructive price wars,

especially given the changing incentives and price signaling seen from Hertz

Given Hertz's high financial leverage, rising interest rates may adversely impact profitability and FCF conversion

The option to sell HERC and use the sale proceeds to pay down debt mitigates this risk

Investment Recommendation: Buy Hertz at $23

13

Industry consolidation dramatically improves pricing environment

Used car market risk is misunderstood

Strong revenue growth opportunities in the U.S. and significant revenue and cost

synergies from Dollar Thrifty acquisition

Divestiture of Equipment Rental segment would unlock substantial value

Multiple drivers to realize Hertz's intrinsic value of $36 per share

1

2

3

4

Primary Research Source List

14

Mark Frissora Chairman & CEO

Elyse Douglas Senior Exec. VP & CFO

Scott Sider President RAC Americas

Lois Boyd President Hertz Equipment Rental

Tom Callahan President Donlen

Bob Stuart Exec. VP Global Sales & Marketing

Rob Moore Sr. VP, IT Services

Scott Massengill Sr. VP & Treasurer

Jatindar Kapur Sr. VP & Corporate Controller

Cannot disclose Tech Initiative Project Manager

Cannot disclose Former Sr. Director of Remarketing

Cannot disclose Dealer Direct Salesman

Cannot disclose Former Hertz Franchisee

Current and Former Employees

Luke Froeb Former Chief Economist of the FTC

Tom Webb Chief Economist of Manheim

Neil Abrams Leading Industry Source for Pricing

Scott White Former Head of Bus Dev at Budget

John Hunt Hunt Ford Chrysler Dealer Principal

Industry Sources

Oscar Schafer Rivulet Capital

Michael Smeets** Fir Tree Partners

Dan Monaco Fidelity Investments

Dennis Hong Altimeter Capital

Steve Bischoff 40 North Industries

Current Shareholders

Michael Karsch Karsch Capital Management

Anna Baghdasaryan**

Ethan Binder Slate Path Capital

Danilo Santiago Rational Asset Management

Jon Luft Eagle Capital Partners

Cristiano Amoruso** Starboard Value

Pallav Gupta MSD Capital

Jason Perri Apollo Global Management

Investment team Roystone Capital

Other Investment Funds

David Lim Wells Fargo

Chris Agnew MKM Partners

Sell-Side Analysts

** Former Pershing Square Challenge Winner

Supplementary Materials

15

16

Table of Contents

Appendix A: Thesis 17

Industry Consolidation 18

Used Car Market 27

Growth Opportunities 38

Dollar Thrifty Acquisition 42

Equipment Rental Business 44

Appendix B: Base Case Financials and Valuation 46

Financial Summary 47

EPS Bridge 53

EBITDA Bridge 54

Model Sensitivities 55

Equity Trading Comps 56

Sum-of-the-Parts Valuation 58

Unit Economics 59

Appendix C: Management 61

Key Management Biographies 62

Track Record 63

Compensation Incentives 65

Appendix D: Ownership 66

Private Equity Ownership 67

Current Shareholder Base 68

Appendix E: Additional Analysis 69

Industry’s Improved Pricing Sustainable? 70

Rental Car Pricing Sources 71

Why Hertz Over Avis? 72

European Car Rental Market 73

Economic Downturn 74

Debunking Myths About Hertz 75

Stock Price History 76

Competitor Overview - Avis 77

Fit with Pershing Square Criteria 78

Appendix F: Downside Case Financials 79

Appendix G: Upside Case Financials 85

Appendix H: Team Member Bios 91

Appendix A: Thesis

17

Industry Consolidation – Timeline

18

A Series of Acquisitions have Consolidated the Car Rental Market

2002… …2007 2008 2009 2010 2011 2012 2013

November 2002:

Avis acquires

Budget

August 2007:

Enterprise acquires

National / Alamo

March 2009:

Hertz acquires

Advantage

October 2011:

Avis acquires

Avis Europe

November 2012:

Hertz acquires

Dollar Thrifty

March 2013:

Avis acquires

ZipCar

Hertz Corporation

Avis Budget Corp

Enterprise Holdings

Industry Consolidation – Current Snapshot

19

Today, Three Players Comprise >90% of the U.S. Rental Car Industry

U.S. Market Share Over Time

20

Source: Auto Rental News

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Other

Budget

National / Alamo

Dollar / Thrifty

Avis

Hertz

Enterprise

U.S. Market Share: On-Airport and Off-Airport

21

On-Airport Market in U.S. Off-Airport Market in U.S.

~$12.5 billion market

Other 2%

Avis

Budget

26%

Enterprise

33%

Hertz 39%

Other 9%

Avis

Budget

10%

Enterprise

69%

Hertz 12%


U.S. Car Rental RPD – Hertz

Since Hertz's IPO in late 2006, Hertz's U.S. rental car rates (RPD) have decreased 19 out of the past 24

quarters, including the last nine quarters

Following the close of the Dollar Thrifty acquisition in November 2012, Hertz's management noted that

U.S. pricing improved during the latter portion of the fourth quarter, culminating in December airport

RPD increasing 1.6% and January airport RPD increasing 6.0%

22

Hertz has seen pricing improve since the Dollar Thrifty acquisition

(8%)

(6%)

(4%)

(2%)

0%

2%

4%

6%

8%

RP

D G

row

th (

y/y

)

Hertz U.S. RPD Growth (y/y)

U.S. Car Rental RPD – Avis

Since Q1 2007, Avis' U.S. rental car rates (RPD) have decreased 17 out of the past 24 quarters,

including the last 11 quarters

Following the close of the Dollar Thrifty acquisition in November 2012, Avis' management noted that

U.S. pricing improved in December, January, February and March

23

Avis has seen pricing improve since the Dollar Thrifty acquisition

(4%)

(2%)

0%

2%

4%

6%

8%

10%

RP

D G

row

th (

y/y

)

Avis U.S. RPD Growth (y/y)

Post-Consolidation Pricing Environment

24

With respect to pricing, we are seeing a pretty healthy

environment toward the end of the fourth quarter and into

the first quarter. And I think there are a few things that are

probably driving it. The first is that we've redoubled our

own efforts to push for pricing wherever we can. And I think

those are having an impact. I think we have an industry that

is generally right-fleeted. And then on top of that, I think

we're seeing our competitors move for profitability, rather

than share or other potential objectives, and that has a

positive impact on all of us.

- Avis CFO in March 2013

We've been very aggressive in initiating price increases

over the last 4 months or so (post the Dollar Thrifty

acquisition), and I think that's had a positive impact. What

we watch for is the extent to which our competitors react to

that with increases. And we've seen a fairly good matching

of increases by both Hertz and the Enterprise.

– Avis CFO in March 2013

One of the headlines I'd like to make is we don't want to

gain share by reducing price. We want to gain share by

increasing value, and that's how we're doing it.


We made a strategic decision to minimize our participation

with less profitable commercial accounts. In January

commercial revenue per day was actually positive compared

with the prior year.


Unprecedented RAC pricing is converting skeptics to

believers. U.S. RAC pricing turned positive just after HTZ-

DTG, fuelling the bull case for a new era of pricing power

(top 3 players control 98% of U.S. on-airport). U.S. pricing

was +5% in Jan and also strong in Feb/Mar. Avis initiated

another price increase effective for Apr 8, which was

quickly followed by Enterprise.

- Morgan Stanley in March 2013

Post-Consolidation Pricing Environment (cont.)

25

The real issue becomes whether anyone is taking a very

different view on pricing and not moving pricing up when

the rest of the industry is, because that clearly can have an

impact. I think in an environment where there are three

competitors rather than four, there's obviously a little bit

less risk of that happening.

- Avis CFO in March 2013

Enterprise says rates at some of the top 200 airports their

brands serve were up to 4% higher in February than

during that month last year.

- USA Today, February 2013

Average Pricing of Six Major Airports, May 2011 to February 2013

Source: Rate-Highway

In (car rental) markets with four brands, each separately

owned, the merger of two brand-owners increases average

prices 4%.

- Former Chief Economist of the FTC

$25

$35

$45

$55

$65

Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec

2011

2012

2013

Structural Shift in Rental Car Pricing Environment

Historically, the major auto manufacturers (GM, Chrysler, Ford) overproduced cars and used the rental

car market as a means to unload excess production

This resulted in consistent over-fleeting and under-utilization in the car rental market

In order to increase utilization, car rental companies were incentivized to lower prices, ultimately

resulting in a highly competitive pricing environment marked by low returns

As a result of the major restructurings of GM, Chrysler, and Ford, auto manufacturers have become

much more rational with their production

This has significantly mitigated over-fleeting in the car rental market and increased utilization

– Car rental utilization rates across the industry are at their all-time high

– High utilization dis-incentivizes car rental companies from competing on price

– Renewed focus on returns and profitability

26

Restructuring in the Auto Manufacturing Industry marks a

Structural Shift in Rental Car Pricing Environment

Used Car Market Analysis

27

Used car prices must fall by 5.7% to return to pre-crisis levels

90

95

100

105

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125

130

Jan

-05

Apr-

05

Jul-

05

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Ma

nh

eim

Use

d C

ar

Valu

e In

dex

Manheim Used Car Value Index is within 5% of All-Time High

Used Car Market Analysis (cont.)

28

“Supply is definitely going to increase. The off-retail

lease volume is a competitive impact.”

– Tom Webb, Manheim's Chief Economist

The widely expected supply increase is around the corner

Supply Increase is Around the Corner Competing supply of off-lease vehicles expected to

significantly rise in 2013-2014

Off-lease volumes are set to increase 55% by 2014.

Off-lease vehicles directly compete with Hertz's

supply of used cars, which put downward pressure

on residuals

Ford, GM, and Chrysler drastically reduced vehicle

leases during the financial crisis. Off-lease volumes

today, which lag lease originations by 33 months,

are close to an all-time low. We expect them to

increase 6% in 2013 and 27% in 2014

By 2014, we expect an increase of 550,000 off-lease

vehicles, which represents 42% of 2012 car rental

sales

Despite the significant increase, we expect off-lease

volume in 2014 to be less than that in 2008

0.0

0.5

1.0

1.5

2.0

2.5

3.0

'05 '06 '07 '08 '09 '10 '11 '12 '13E '14E

Car

s (i

n m

illi

ons)

Off-Lease Volume New Lease Originations

Competing

Supply

+55%


29

We are in a new era of structurally higher used car residual values

Healthier OEMS = Healthier Residuals Shift to Online Purchases = Healthier Residuals

Restructured OEMs have abandoned destructive

practices

Rationalized capacity at Big 3 automakers means

that practices that destroyed residual values will be

gone: big incentives, high dealer inventories,

excessive lease subsidies, and short rental cycles

Rental car companies now have rational relationships

with OEMs

The shift to a risk model means that OEM excess

capacity is no longer pushed through to rental car

companies, which leads to a more rational supply

and protects residual values

Online buying makes retail and direct-to-dealer

channels much easier to operate and more likely to

succeed

Rapid changes in technology has changed the way

dealers and individuals buy cars

58% of used car buyers say the Internet was the

most influential element in their vehicle search

Online buying transforms local markets to national

markets

Fewer national used car market inefficiencies leads

to structurally higher residual values

The average distance between buyers and sellers is

190 miles for local auction purchases vs. 439 miles

for online purchases

Upcoming Increase in Supply – It's Different This Time


30

If Prices Fall, Hertz has Many Levers to Pull

Increase Direct-to-Dealer Mix Increase Retail Mix

Hertz can increase its Dealer Direct mix to mitigate

falling prices

Increasing the Dealer Direct channel by 10%

decreases depreciation/unit/month by 1.1%

Hertz can increase its Retail/Rent2Buy mix to mitigate

falling prices

Increasing the Retail/Rent2Buy channel by 10%

decreases depreciation/unit/month by 3.1%

Increase Holding Period in a Downside Scenario

Hertz can increase its rental holding period to mitigate

falling prices

Increasing average fleet holding period by three

months decreases depreciation/unit/month by 0.6%

Increase Prices in a Downside Scenario

Falling residuals affect all rental car companies

In the past, pricing has increased after significant

declines in used car residual values (72% R-squared)

Hertz has many ways to mitigate declines in used car prices


31

“While people are forecasting this headwind

from a drop in the Manheim Index, we are not

experiencing it. It's due to the shift in channels,

where we're selling the cars and how we're

selling them, and that's improving our fleet

costs.”

“Is [lower depreciation] sustainable? We

believe it is sustainable in our business model.

We believe that used cars are probably the most

liquid currency out there, and that if you look

at over the last 40 years used cars have always

held their value. I mean, after 9/11 they

bounced back in four months. After 2008, 2009

they bounced back in six months to higher

levels than they were before.”

“We feel really good about fleet costs

continuing to go down, based on only being

about 50% of the way deployed on the car

channel shift.”

-- CEO Mark Frissora

Hertz's remarketing strategy is working

105

110

115

120

125

130

135

140

145

Jan-1

1

Feb

-11

Mar

-11

Apr-

11

May

-11

Jun-1

1

Jul-

11

Aug-1

1

Sep

-11

Oct

-11

Nov-1

1

Dec

-11

Jan-1

2

Feb

-12

Mar

-12

Apr-

12

May

-12

Jun-1

2

Jul-

12

Aug-1

2

Sep

-12

Man

hei

m U

sed

Car

Valu

e In

dex

Manheim Index Hertz Residual Values

+10%

-3%

Hertz has significantly outperformed the Manheim Index since Jan 2011

7% 8% 9% 13% 23%

33% 33%

0%

20%

40%

60%

80%

100%

2009 2010 2011 2012 2013E 2014E 2015E

Pct of Fleet Sold - Retail/Rent2Buy

5% 6% 7% 7% 7% 7% 7%

0%

20%

40%

60%

80%

100%

2009 2010 2011 2012 2013E 2014E 2015E

Pct of Fleet Sold - Other Channels

0% 11%

19%

47% 47% 48% 48%

0%

20%

40%

60%

80%

100%

2009 2010 2011 2012 2013E 2014E 2015E

Pct of Fleet Sold - Dealer Direct

88%

75% 65%

33% 23%

13% 13%

0%

20%

40%

60%

80%

100%

2009 2010 2011 2012 2013E 2014E 2015E

Pct of Fleet Sold - Auction

Remarketing Channel Mix – Overview

32

% of Fleet Sold through Auction % of Fleet Sold through Retail/Rent2Buy

% of Fleet Sold through Dealer Direct % of Fleet Sold through Other Channels

The shift away from auctions into more profitable resale

channels mitigates the expected drop in used car prices

Remarketing Channel Mix – Overview (cont.)

33

Dealer Direct - $500 Premium over Auction Retail/Rent2Buy - $1,300 Premium over Auction

Retail/Rent2Buy and Dealer Direct offer

significant premiums over the auction channel

$100

$90

$75

$75

$160

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

Premium Over Auction - Dealer

Direct

Extra Interest and

Depreciation

Price Differential

Transportation to

Auction

Auction

Reconditioning Fees

Auction Sales Fee

$100

$90

$75

$1,035

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

Premium Over Auction -

Retail/Rent2Buy

Price Differential

Transportation to

Auction

Auction

Reconditioning Fees

Auction Sales Fee

Remarketing Channel Overview – Retail/Rent2Buy

34

We expect the shift to retail/Rent2Buy to

continue to offset the decline in residuals

1. Retail Sales Cut Out the Middleman 2. Innovative Sales Process Provides Advantage

Hertz cuts out the cost of the auction for the buyer

and seller, which enables it to charge the lowest retail

prices

Average retail price is 20% below Blue Book Value

Instead of 30-minute test drives, Hertz offers

refundable 3-day test drives, which customers love

and traditional car dealerships cannot offer

Prices are non-negotiable (no-haggle price)

3. Retail Sales Growth Obscured by Accounting 4. Strong Reviews from Customers

With the steady supply of used cars and an attractive

value proposition to retail customers, we believe

Rent2Buy will ultimately become an effective

competitor to CarMax

Retail stores have grown from nine in 2011 to over 30

today

Continued growth in retail sales is only reflected in a

lower depreciation cost, a much less visible metric

than sales growth

“Better price, recent model years, the ability to 'try

before you buy,' hassle-free buying, a warranty, and

buying the cream of the crop”

“The prices are VERY good”

Remarketing Channel Overview – Dealer Direct

35

We expect the shift to Dealer Direct sales to increase utilization and decrease fleet cost

Hertz has significantly built up its Direct-to-Dealer sales

infrastructure

Direct-to-Dealer sales force increased from 15 in 2011

to over 120 today

Dealer Direct increases fleet utilization by advertising

active rentals

Attractive value proposition for dealers

$45 buyer fee compared to $300-$500 from Manheim,

the largest used car auction

No change in dealer behavior required. Enterprise has a

long history of selling direct to dealers

Strong growth despite relatively infant infrastructure

This channel didn't exist in 2009, but now represents

40% of remarketing. The channel more than doubled

from 2011-2012

Only 6% of vehicles have condition reports and pictures

– Vehicles with condition reports and pictures are

eight times more likely to sell, according to

Manheim

– Management has indicated that most Dealer Direct

vehicles will have electronic condition reports by

2014

Capitalization Costs

36

Hertz is Less Reliant on Ford and GM

Consolidation Increases Purchasing Scale

40%

13%

17%

25%

13%

16%

43% 33%

0%

20%

40%

60%

80%

100%

2006 2012

% of Vehicles Purchased by Manufacturer

Others

Nissan

Toyota

General Motors

Ford

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

2010 2011 2012

Avg #

of

Cars Donlen

International (Hertz

and Dollar Thrifty)

Domestic (Hertz and

Dollar Thrifty)

Hertz has moved to a significantly more diverse fleet

Reduced reliance on Ford and GM:

– Since the spin-off from Ford in 2005, Hertz has

reduced its reliance on Ford and General Motors

from 57% of purchases to just 38% today

– More suppliers = more bargaining power

Shift from program cars saves 1% on capitalization

costs

Consolidation concentrates vehicle purchasing and

increases buyer power

Deep analytics on trim packages minimizes

depreciation/unit/month

New software packages ensure that vehicles have the

trim packages that balance customer satisfaction,

capitalization costs, and residual values

This analysis significantly reduced purchases of exotic

trim packages on cars for leisure customers

Fleet Efficiency

37

Fleet Efficiency is Improving

Improved Fleet Efficiency Reduces Costs

R² = 86%

70.0%

72.0%

74.0%

76.0%

78.0%

77.5% 78.0% 78.5% 79.0% 79.5% 80.0% 80.5%

DO

E +

SG

&A

ma

rgin

U.S. RAC Fleet Efficiency

Increases in fleet efficiency can significantly reduce costs

Fleet efficiency explains 86% of the variation in DOE

+ SGA margin

Three main factors are leading to increased utilization

Synergies from Dollar Thrifty – opposite demand

schedules means that Hertz's excess supply of weekend

cars get used at Dollar Thrifty

Technological Changes – kiosks, Hertz On Demand,

and mobile apps, reduce the need for staffed locations

and expand hours to 24/7

The Shift to the Dealer Direct Remarketing Channel –

reduces the time cars spend grounded by up to 16 days,

which saves approximately $10 per day in depreciation

and interest expense

We expect these factors to increase utilization by

130bps to 80.5% by 2015

77.9%

77.1%

78.5% 78.3%

78.6%

79.3%

80.0% 80.3%

80.5%

75.0%

76.0%

77.0%

78.0%

79.0%

80.0%

81.0%

'07 '08 '09 '10 '11 '12 '13E '14E '15E

Growth Initiative – U.S. Off-Airport Market

38

Source: Hertz investor presentation

Growth is Accelerating

Off-Airport Revenue Mix

1,000

1,500

2,000

2,500

3,000

2005 2006 2007 2008 2009 2010 2011 2012

Off-Airport Locations

2004-2008:

+5.5% CAGR

2009-2012:

+14.0% CAGR

43%

38%

19%

Retail

Replacement

Business

12% share in $11bn off-airport market = significant

growth opportunity

While off-airport revenue per day is lower than that in

airport markets, rental periods are longer, leading to

higher utilization and lower costs

The insurance replacement market is particularly

attractive, with long rental periods and stable revenues

and profits, even in economic downturns

Changes in technology (Hertz On Demand, kiosks)

reduce the up-front investment costs, making this

market expansion particularly attractive

We expect off-airport locations to grow by >10% per

year through 2015

Off-Airport vs. On-Airport Cost Differentials

Off-Airport Location On-Airport Location Difference

Labor Costs $4.09 $4.47 9% lower

DOE $18.54 $28.00 34% lower

SG&A $1.63 $3.12 48% lower

Utilization 80.3% 78.3% 2% higher

Growth Initiative – ExpressRent Kiosks / iPhone App

39

iPhone App ExpressRent Kiosk A parking space is the only requirement

Hertz can use technology to leapfrog Enterprise on off-

airport markets

Opens up body shops, car dealerships, and hotels to

Hertz rental cars. Requires a modest $6000 kiosk

investment

Increasing consumer preference towards mobile

applications reduces costs

70% of Hertz On Demand customers used mobile apps

Mobile check-in increases labor productivity and

customer satisfaction

How it works

iPhone App: Text message after plane lands notifies

customer where their car is located. Eliminates the

need to stop by the counter

24/7 kiosk: Videophone connects to agent in

Oklahoma, City who guides customer through the

process. Customer scans driver's license at kiosk

“Investors underestimate the impact of these volume-

enhancing product and service improvements.”

– Buyside Investment Analyst

Growth Initiative – Hertz On Demand (Hourly Rentals)

40

Significant Advantages Over ZipCar

Scale: approximately 500,000 U.S. rental cars by

2014 vs. 9,700 for ZipCar

No membership required and free to join, compared

to Zipcar's $25 application fee and $60/year

Second-mover advantage

– Cheaper and better technology

– Does not have to educate the public about car

sharing

Increases Fleet Utilization

Car-sharing customers and traditional rent-a-car

customers do not overlap

24/7, short-term car sharing minimizes idle time

Reduces Costs

On Demand technology is completely self-serve

Hertz On Demand is Self Serve

Growth Initiative – Donlen Fleet Management

41

“Donlen is the best

remarketer I've ever seen.”

– Former Hertz Licensee

“Our Donlen acquisition has turned

out to be a much better acquisition

than we anticipated. The revenue

synergies that we're getting out of

this acquisition are large.”

– CEO Mark Frissora

Donlen Fleet Management Solutions Donlen gives Hertz an end-to-end solution for its

customers. No other rental car company offers this

solution

Significant revenue synergies continue to be realized

E.g. Hertz Value Lease expands Donlen's product

offering to large companies by leveraging Hertz's

rental car network

Revenue growth is accelerating. We expect 2012

revenues of ~$460 million to grow by 16% to $534

million

Donlen's expertise in remarketing is an

underappreciated asset

Our primary research discovered that Donlen has

significant expertise in sourcing and remarketing

that will be a substantial benefit to Hertz as it

continues to move away from program cars

Dollar Thrifty Acquisition Terms

42

Hertz completed its acquisition of Dollar Thrifty in November 2012

$87.50 per share purchase price

Equity Value of $2.6 billion

Corporate Enterprise Value of $2.3 billion

2012E EV/Corp EBITDA multiple of 7.8x (based on mid-point of DTG

2012E Corp. EBITDA guidance of $285 million to $310 million )

Purchase Price

Deal Structure 100% cash consideration

Antitrust clearance required Hertz to divest its Advantage brand

Advantage divestiture (~$30 million of Corp. EBITDA)

Transaction Benefits

Highly attractive transaction for HTZ owners – EPS accretion & positive EVA

Including impact of Advantage divestiture (~$30 million of Corp.

EBITDA)

Estimated $600 million in synergies

Acquisition multiple of 2.6x EV/EBITDA (including synergies)

Synergies from Dollar Thrifty Acquisition

Hertz operated primarily in the premium segment of the car rental market

The Dollar Thrifty acquisition gives them a leading brand in the faster growing mid-tier and value market or the

“leisure” segment

Revenue synergies of $300M per year and cost synergies of $300M per year. Revenue synergies have incremental

margins of 20-30%

By 2015, these synergies would contribute $0.57 in incremental EPS. $1.5B NPV of incremental operating profits

43

Equipment Rental (HERC) Business Overview

44

Business

HERC offers a broad range of equipment for rental in the U.S., Canada, France,

Spain, China and Saudi Arabia. Ancillary to its rental business, it is also a

dealer of certain brands of new equipment in the U.S. and Canada

Customers range from local contractors to large industrial plants. As of

December 31, 2012, no customer accounted for more than 1.5% of HERC’s

global sales

HERC revenues and margins are cyclical due to high exposure to the

construction and industrial markets

U.S. represents approximately 70% of worldwide revenues

Fleet

HERC acquires its equipment from a variety of manufacturers. The equipment

is typically new at the time of purchase and is not subject to any repurchase

program

The per-unit acquisition cost of rental equipment varies from over $200,000 to

under $100. As of December 31, 2012, the average per-unit acquisition cost

(excluding small equipment purchased for less than $5,000 per unit) for rental

fleet was approximately $38,000

Average age of worldwide rental fleet is 43 months

HERC Revenue Mix by Markets

HERC Fleet by Equipment Type

Equipment Rental Divestiture to Unlock Value

HERC operates in an extremely fragmented industry, with the top 10 North

America rental companies making up only 30% of revenue

United Rentals (NYSE:URI) is the market leader with 13% share

Sunbelt Rentals (LSE:AHT) is 2nd with 5% market share

HERC is 3rd with 4% market share

Management has previously discussed the possibility of divesting HERC

Potential buyers include United Rentals, Sunbelt Rentals, and private equity

firms

We spoke with an analyst who asked the CEO if he foresees any FTC

issues with regards to an acquisition of HERC by United Rentals or

Sunbelt Rentals. He replied that has already looked into it and there would

not be any issues

We believe a monetizing spinoff would maximize shareholder value. Hertz

should:

Issue debt at HERC level, transfer the proceeds of debt issuance to parent

(Hertz Global Holdings), and then spin-off HERC

Sell HERC after six months to qualify for tax-free treatment under IRS

Section 355(e) “Safe Harbor” rule

An outright sale of HERC could also be pursued based on the cost-basis

(undisclosed) of HERC’s historical acquisitions

45

“We've always maintained the

position that if there was a reason

to divest it that was shareholder

friendly, we're not resistant to

looking at other things and other

variables in terms of the equipment

rental business.”


United

Rentals

13% Sunbelt

5%HERC

4%

Other

78%

Appendix B: Base Case Financials

and Valuation

46

Model Summary – Base Case

47

($ in millions, except per share data) Fiscal Year Ending December

2008 2009 2010 2011 2012 2013e 2014e 2015e 2016e 2017e

Income Statement Metrics

Total Revenue $8,525 $7,102 $7,563 $8,298 $9,021 $11,163 $11,952 $12,670 $13,055 $13,465

Total Revenue Growth (1.8%) (16.7%) 6.5% 9.7% 8.7% 23.8% 7.1% 6.0% 3.0% 3.1%

Car Rental 0.8% (12.8%) 8.5% 9.2% 7.8% 26.7% 7.1% 6.1% 3.1% 3.2%

Equipment Rental (5.5%) (33.0%) (3.7%) 13.0% 14.5% 7.6% 6.6% 5.6% 2.8% 2.8%

EBITDA 1,240 998 1,089 1,356 1,607 2,420 2,922 3,258 3,407 3,568

EBITDA Margin 14.5% 14.1% 14.4% 16.3% 17.8% 21.7% 24.4% 25.7% 26.1% 26.5%

Net Interest Expense 429 404 436 279 274 386 365 336 308 253

EBT 238 199 347 681 901 1,571 2,062 2,398 2,561 2,761

EBT Margin 2.8% 2.8% 4.6% 8.2% 10.0% 14.1% 17.3% 18.9% 19.6% 20.5%

Car Rental 4.2% 7.8% 9.9% 12.0% 13.4% 19.2% 22.3% 23.6% 24.0% 24.4%

Equipment Rental 16.4% 6.9% 7.3% 13.3% 16.4% 16.3% 17.7% 18.8% 19.4% 20.0%

Cash Tax Expense 83 70 121 238 315 550 722 839 896 966

Net Income on Operating Basis 134 115 208 423 586 1,021 1,341 1,559 1,665 1,795

EPS $0.41 $0.31 $0.51 $0.95 $1.31 $2.20 $2.87 $3.33 $3.53 $3.79

EPS Growth nm (25.5%) 63.7% 88.1% 37.5% 68.4% 30.6% 15.7% 6.2% 7.3%

Balance Sheet Metrics

Net Debt 3,260 3,339 3,249 3,465 5,440 4,355 2,804 1,044 (898) (3,011)

Total Debt to Equity 3.12x 2.25x 2.77x 2.11x 2.61x 1.68x 1.15x 0.80x 0.53x 0.30x

Net Debt / EBITDA 2.63x 3.34x 2.98x 2.55x 3.38x 1.80x 0.96x 0.32x (0.26x) (0.84x)

Return on Equity 9.1% 5.5% 9.9% 18.9% 23.4% 27.7% 27.0% 24.2% 20.8% 18.5%

Return on Invested Capital 7.2% 5.8% 6.4% 9.0% 8.4% 12.9% 14.8% 15.3% 15.2% 15.5%

Return on Assets 2.6% 2.5% 2.9% 3.5% 3.3% 5.3% 6.3% 6.9% 7.1% 7.4%

Cash Flow Metrics

Cash Flow - Operating 2,096 1,775 2,209 2,233 2,718 3,714 4,359 4,762 5,003 5,235

Capex 1,317 1,579 1,063 1,832 2,663 2,629 2,808 3,001 3,061 3,122

FCF 779 196 1,146 402 55 1,085 1,551 1,761 1,942 2,113

Income Statement – Base Case

48


2008 2009 2010 2011 2012 2013e 2014e 2015e 2016e 2017e

Net Sales $8,525 $7,102 $7,563 $8,298 $9,021 $11,163 $11,952 $12,670 $13,055 $13,465

Bloomberg Consensus: $10,911 $11,695 $12,548

Expenses:

Direct Operating 4,930 4,084 4,283 4,566 4,796 5,464 5,651 5,882 6,004 6,132

Deprec. of revenue earning equip, leases 2,194 1,931 1,868 1,906 2,148 2,640 2,808 2,979 3,082 3,191

SG&A 769 641 665 745 946 1,309 1,491 1,615 1,655 1,697

Interest Expense 870 680 773 700 650 710 683 649 614 551

Interest Income 25 65 12 6 5 6 6 7 7 7

Impairments, Others 1,169 0 0 63 36 0 0 0 0 0

Total Expense 9,907 7,272 7,577 7,974 8,570 9,816 10,126 10,519 10,747 10,964

GAAP Pre-Tax Income (1,382) (171) (15) 324 451 1,348 1,826 2,151 2,307 2,501

Adjustments for non-cash and non-recurring items:

Purchase Accounting 101 90 90 88 110 129 138 146 150 155

Non-Cash Debt Charges 100 172 183 130 84 94 98 101 103 105

Other charges 1,419 108 89 138 258 0 0 0 0 0

(Restructuring Charges, Derivative Loss, Pension Adjustment, Acquisition Charges, Other)

Total Adjustments 1,620 370 362 356 451 224 236 247 254 260

Adjusted Pre-Tax Income 238 199 347 681 901 1,571 2,062 2,398 2,561 2,761

Cash Tax 83 70 121 238 315 550 722 839 896 966

Less: Noncontrolling interest 21 15 17 20 0 0 0 0 0 0

Net Income to Hertz 134 115 208 423 586 1,021 1,341 1,559 1,665 1,795

Diluted EPS $0.41 $0.31 $0.51 $0.95 $1.31 $2.20 $2.87 $3.33 $3.53 $3.79

Bloomberg Consensus: $1.90 $2.38 $2.68

Fully Diluted Share 323 372 412 445 448 464 466 469 471 473

EBITDA Reconciliation – Base Case

49


2008 2009 2010 2011 2012 2013e 2014e 2015e 2016e 2017e

Car Rental Segment:

GAAP Pre-tax income (385) 190 442 756 784 1,733 2,172 2,452 2,571 2,701

+ D&A and other purchase accounting 2,107 1,785 1,724 1,774 2,007 2,509 2,669 2,834 2,932 3,038

+ Interest, net of interest income 445 302 390 329 312 298 292 286 279 271

+ Impairment charges 443 0 0 0 0 0 0 0 0 0

GAAP EBITDA before adjustments 2,610 2,276 2,556 2,858 3,103 4,539 5,133 5,572 5,783 6,010

- Car rental fleet interest 425 316 377 313 297 285 280 275 268 261

- Car rental fleet depreciation 1,844 1,614 1,595 1,651 1,876 2,347 2,495 2,650 2,743 2,842

+ Non-cash expenses & charges 83 130 135 33 41 51 54 58 59 61

+ Extraordinary, unusual charges 108 105 30 24 136 0 0 0 0 0

RAC Segment EBITDA 532 582 749 950 1,107 1,958 2,413 2,705 2,831 2,968

Equipment Rental Segment:

GAAP Pre-tax income (629) (20) (15) 69 152 190 225 256 274 292

+ D&A and other purchase accounting 417 383 338 324 356 380 405 428 440 453



GAAP EBITDA before adjustments 624 416 363 439 561 617 675 729 757 787

+ Non-cash, extraordinary, unusual charges 106 39 35 42 25 0 0 0 0 0

HERC Segment EBITDA 731 455 398 481 586 617 675 729 758 787

Other reconciling items:

GAAP Pre-tax income (368) (340) (442) (501) (486) (575) (571) (557) (537) (492)



+ Noncontrolling interest (21) (15) (17) (20) 0 0 0 0 0 0

GAAP EBITDA before adjustments (76) (36) (117) (188) (191) (199) (213) (226) (233) (240)


+ Extraordinary, unusual charges 24 (39) 21 85 78 0 0 0 0 0

Corporate Segment EBITDA (23) (38) (59) (74) (86) (155) (166) (176) (181) (187)

Total Adjusted EBITDA 1,240 998 1,089 1,356 1,607 2,420 2,922 3,258 3,407 3,568

Balance Sheet – Base Case

50


2008 2009 2010 2011 2012 2013e 2014e 2015e 2016e 2017e

Assets:

Cash & ST investments 1,326 1,351 2,582 1,240 1,105 1,828 2,879 4,140 5,111 5,956

Receivables 1,911 1,325 1,357 1,616 1,887 2,335 2,500 2,650 2,730 2,816

Inventory 96 93 87 84 106 131 140 148 153 158

Revenue Earning Equipment 8,692 8,852 8,924 10,105 12,908 12,675 12,436 12,205 11,923 11,585

Other Property & Equipment 1,255 1,188 1,164 1,252 1,436 1,457 1,253 1,071 852 594

Goodwill & Intangibles 2,886 2,893 2,879 2,954 5,374 5,287 5,194 5,096 4,994 4,889

Other 287 300 353 422 470 470 470 470 470 470

Total Assets 16,451 16,002 17,345 17,674 23,286 24,183 24,872 25,779 26,234 26,469

Liabilities & S.E.:

Payables 931 659 954 897 999 1,236 1,324 1,403 1,446 1,491

Fleet Debt 6,387 5,675 5,476 6,612 8,903 8,742 8,578 8,418 8,224 7,991

Corporate Debt, Leases 4,586 4,689 5,831 4,705 6,545 6,184 5,684 5,184 4,213 2,945

Deferred Income Taxes 1,482 1,471 1,508 1,688 2,700 2,700 2,700 2,700 2,700 2,700

Other 1,577 1,410 1,457 1,535 1,631 1,631 1,631 1,631 1,631 1,631

Total Liabilities 14,963 13,905 15,226 15,439 20,779 20,493 19,916 19,336 18,213 16,758

Shareholders' Equity 1,488 2,097 2,118 2,235 2,507 3,690 4,956 6,443 8,021 9,710

Total Liabilities & S.E. 16,451 16,002 17,345 17,674 23,286 24,183 24,872 25,779 26,234 26,469

Key Statistics:

Net Debt 3,260 3,339 3,249 3,465 5,440 4,355 2,804 1,044 (898) (3,011)

Net Debt / Equity 2.19x 1.59x 1.53x 1.55x 2.17x 1.18x 0.57x 0.16x (0.11x) (0.31x)


Total Debt / Equity 3.08x 2.24x 2.75x 2.11x 2.61x 1.68x 1.15x 0.80x 0.53x 0.30x

Receivables Turnover 4.46x 5.36x 5.57x 5.13x 4.78x 4.78x 4.78x 4.78x 4.78x 4.78x

Receivables Days 80.7 67.2 64.6 70.1 75.3 75.3 75.3 75.3 75.3 75.3

Cash Flow Statement – Base Case

51


2008 2009 2010 2011 2012 2013e 2014e 2015e 2016e 2017e

Operating Activities:

Net Income 134 115 208 423 586 1,021 1,341 1,559 1,665 1,795

Revenue Earning Equip. D&A 2,194 1,931 1,868 1,906 2,148 2,640 2,808 2,979 3,082 3,191

Other PPE D&A 239 226 219 228 257 289 298 303 299 295

Changes in Working Capital (331) 316 270 (313) (190) (236) (87) (79) (42) (45)

Others (141) (813) (357) (10) (82) - - - - -

Cash Flow from Operating Act. 2,096 1,775 2,209 2,233 2,718 3,714 4,359 4,762 5,003 5,235

Investing Activities:

Fleet Equip. Capex, net disposals (1,178) (1,502) (922) (1,604) (2,488) (2,406) (2,569) (2,748) (2,800) (2,853)

Other PPE Capex, net (139) (77) (140) (228) (175) (223) (239) (253) (261) (269)

Acquisitions, net cash acquired (71) (76) (48) (227) (1,905) - - - - -

Others (79) 35 (1) (30) 90 - - - - -

Cash Flow from Investing Act. (1,466) (1,621) (1,111) (2,089) (4,477) (2,629) (2,808) (3,001) (3,061) (3,122)

Financing Activities:

Proceeds from Debt Issuance, net (816) 523 (799) (1,320) 443 (112) (250) (250) (971) (1,268)

Proceeds from Rev. Line of Credit 199 (1,126) 1,026 57 1,273 (250) (250) (250) - -

Proceeds from Equity Issuance - 529 - - - - - - - -

Dividends Paid - - - - - - - - - -

Others (78) (54) (93) (224) (92) - - - - -

Cash Flow from Financing Act. (695) (129) 134 (1,487) 1,625 (362) (500) (500) (971) (1,268)

Cash Flow for Year (66) 25 1,231 (1,342) (135) 723 1,051 1,261 971 845

Cash at Beginning of Year 1,391 1,326 1,351 2,582 1,240 1,105 1,828 2,879 4,140 5,111

Cash at End of Year 1,326 1,351 2,582 1,240 1,105 1,828 2,879 4,140 5,111 5,956

CFO less Capex (FCF) 779 196 1,146 402 55 1,085 1,551 1,761 1,942 2,113

Key Model Assumptions

52

Actual Base Bear Bull

2012a 2013e 2014e 2015e 2013e 2014e 2015e 2013e 2014e 2015e

Sales 9,021$ 11,163$ 11,952$ 12,670$ 10,828$ 11,222$ 11,715$ 11,168$ 12,048$ 12,812$

EBITDA 1,607 2,420 2,922 3,258 2,042 2,280 2,458 2,585 3,250 3,481

EPS 1.31 2.20 2.87 3.33 1.60 1.92 2.27 2.44 3.37 3.85

Critical revenue drivers:

U.S. RPD - growth Y/Y (3.1%) 2.5% 2.5% 0.0% (1.0%) (1.0%) (1.0%) 3.5% 3.5% 0.0%

U.S. Enplanements - growth Y/Y 4.0% 3.5% 3.5% 3.0% 2.0% 2.0% 2.0% 4.0% 4.0% 3.0%

International RPD - growth Y/Y (2.9%) 0.0% 0.0% 0.0% (2.0%) (2.0%) (2.0%) 0.0% 0.0% 0.0%

International Enplanements - growth Y/Y (2.9%) 1.0% 1.0% 1.0% 0.0% 0.0% 0.0% 1.5% 1.5% 1.5%

Critical cost drivers:

Manheim Index (Used Car Prices) - growth Y/Y (1.0%) (4.0%) (2.0%) 0.0% (6.0%) (4.0%) 0.0% (3.0%) (1.0%) 0.0%

Fleet utilization 79.3% 80.0% 80.3% 80.5% 79.5% 79.5% 79.6% 80.5% 81.0% 81.5%

+ Y-Y gain from DTG integration nm 0.50% 0.00% 0.00% 0.25% 0.00% 0.00% 0.75% 0.00% 0.00%

+ Y-Y gain from technology improvements nm 0.25% 0.25% 0.25% 0.00% 0.00% 0.00% 0.50% 0.50% 0.50%

+ Y-Y gain from incremental 1% share of off-airport sales nm 2.2% 2.2% 2.2% 2.2% 2.2% 2.2% 2.2% 2.2% 2.2%

Channel mix

Dealer direct 47.0% 47.3% 47.5% 47.5% 47.0% 47.0% 47.0% 48.5% 50.0% 50.0%

Retail & R2B 13.0% 22.8% 32.5% 32.5% 13.0% 13.0% 13.0% 25.3% 37.5% 37.5%

Auction, other 40.0% 30.0% 20.0% 20.0% 40.0% 40.0% 40.0% 26.3% 12.5% 12.5%

Average resale value rel. auctions

Dealer direct 500$ 500$ 500$ 500$ 500$ 500$ 500$ 500$ 500$ 500$

Retail & R2B 1,300 1,300 1,300 1,300 1,100 1,100 1,100 1,500 1,500 1,500

Final impact on Depreciation per Car per Month Y/Y *

5.2% 0.6% 0.5% - 7.1% 1.0% 5.6% (2.7%) (2.8%) -

* (determined by Manheim Index, fleet utilization, channel mix,

and average premium of resale price over auction channel)

DTG cost synergies ($mn) -$ 150$ 250$ 300$ 100$ 200$ 300$ 200$ 300$ 300$

EPS Bridge – Base Case

53

EBITDA Margin Bridge – Base Case

54

Model Sensitivities

55

Sensitivity to U.S. RPD Growth Y/Y Sensitivity to Fleet Utilization

-2.5% 0.0% 2.5% 5.0% 7.5% 78.3% 79.3% 80.3% 81.3% 82.3%

2014e EBITDA $2,445 $2,610 $2,922 $3,239 $3,562 2014e EBITDA $2,872 $2,897 $2,922 $2,946 $2,970

2014e EPS $2.22 $2.44 $2.87 $3.31 $3.76 2014e EPS $2.80 $2.84 $2.87 $2.91 $2.94Price Target $28.06 $30.80 $36.02 $41.34 $46.74 Price Target $35.19 $35.61 $36.02 $36.42 $36.81

Sensitivity to U.S. Enplanements Y/Y Sensitivity to Manheim Index Y/Y

0.0% 1.8% 3.5% 5.3% 7.0% -8.0% -6.0% -4.0% -2.0% 0.0%

2014e EBITDA $2,852 $2,887 $2,922 $2,957 $2,992 2014e EBITDA $2,755 $2,838 $2,922 $3,006 $3,089

2014e EPS $2.78 $2.83 $2.87 $2.92 $2.97 2014e EPS $2.65 $2.76 $2.87 $2.99 $3.10

Price Target $34.86 $35.44 $36.02 $36.60 $37.18 Price Target $33.38 $34.70 $36.02 $37.35 $38.67

2012 2014e Scenarios

Actual Base Down Up

Channel used car resale price relative to Auction channel

Dealer Direct $500 $500 $500 $500 Retail & R2B $1,300 $1,300 $1,100 $1,500

Share of Vehicles Sold via Channel Dealer Direct 47% 48% 47% 50%

Retail & R2B 13% 33% 13% 38%

Auction, other 40% 20% 40% 13%

EBITDA $1,607 $2,922 $2,280 $3,250

EPS $1.31 $2.87 $1.92 $3.37Price per Share Estm. $36.02 $19.37 $45.14

Impact of Used Car Prices and Resale Channel Mix

Equity Trading Comps

56

Share Market Enterprise CAGR '12a-'14e EV / EBITDA Price / Earnings Net Debt/

Company Price Cap Value Sales EBITDA EPS 2013e 2014e 2013e 2014e EBITDA

Car Rental

Hertz Global Holdings $23.72 10,959 16,626 14% 26% 34% 7.4x 6.4x 12.5x 9.9x 3.4x

Avis Budget Group $28.00 3,083 5,382 6% 6% 10% 6.6x 5.8x 12.0x 9.6x 2.7x

Average 10% 16% 22% 7.0x 6.1x 12.3x 9.8x 3.1x

Equipment Rental

United Rentals $51.69 4,871 11,888 15% 23% 26% 5.3x 4.8x 10.7x 8.5x 4.2x

Ashtead Group (Sunbelt) $9.31 4,658 6,301 13% 22% 42% 7.0x 6.6x 20.1x 16.5x 2.2x

Average 14% 22% 34% 6.2x 5.7x 15.4x 12.5x 3.2x

Historical Comps

57

Sum-of-the-Parts Valuation

58

We use a forward EV/EBITDA range of 6.0x-8.0x

for the Car Rental segment

Our base case multiple is Hertz's current NTM

EV/EBITDA of 7.4x

However, we believe Hertz's valuation could

re-rate to its historic average EV/EBITDA of

8.5x given industry dynamics, improving

pricing, strong execution by management team

especially on integration of Dollar Thrifty, and

efficient capital allocation with potential for

cash returns in the next 18 months

We use a forward EV/EBITDA range of 5.0x-6.5x

for the Equipment Rental segment

The Equipment Rental companies currently

trade at an average 6.2x forward EV/EBITDA

and historically traded in the 2.4x-7.5x range

($ in millions except per share) Base Bear Bull

Revenue (2014e) Car Rental 10,361 9,630 10,457

Equipment Rental 1,589 1,560 1,619

Total $11,952 $11,192 $12,078

EBITDA (2014e) Car Rental 2,413 1,828 2,727

Equipment Rental 509 432 539

Total $2,922 $2,261 $3,266

Forward EV / EBITDA Car Rental 7.4x 6.0x 8.0x

Equipment Rental 6.2x 5.0x 6.5x

Enterprise Value Car Rental 17,854 10,970 21,814

Equipment Rental 3,158 2,139 3,505

Total $21,012 $13,109 $25,320

Less: Debt (2013e) (6,184) (6,259) (5,894)

Plus: Cash (2013e) 1,828 1,677 1,756

Less: Unfunded Pension Obligation (2013e) (227) (227) (227)

Excess Value $16,430 $8,301 $20,954

Price per Share $35.41 $17.89 $45.16

Upside to Current Price 49% (25%) 90%

Unit Economics

59

Per Car in US$ units

2008 2009 2010 2011 2012 2013e 2014e 2015e 2016e 2017e Average Rate per Day $44.31 $43.68 $43.14 $41.33 $40.01 $40.69 $41.40 $41.40 $41.40 $41.40

Growth Y/Y nm -1.4% -1.2% -4.2% -3.2% 1.7% 1.7% 0.0% 0.0% 0.0%

Number of Transaction Days 281 286 286 287 289 292 293 294 294 294

Utilization 77.1% 78.5% 78.3% 78.6% 79.3% 80.0% 80.3% 80.5% 80.6% 80.6%

Rental Rate Sales $12,461 $12,513 $12,323 $11,858 $11,577 $11,880 $12,128 $12,169 $12,171 $12,173 Fleet Interest Expense $989 $764 $901 $696 $615 $458 $430 $401 $386 $369

% of Sales 7.9% 6.1% 7.3% 5.9% 5.3% 3.9% 3.5% 3.3% 3.2% 3.0%

Fleet Depreciation Expense $4,029 $3,904 $3,582 $2,683 $2,821 $2,837 $2,852 $2,852 $2,852 $2,852

% of Sales 32.3% 31.2% 29.1% 22.6% 24.4% 23.9% 23.5% 23.4% 23.4% 23.4% Operating Profit before DOE $7,444 $7,845 $7,840 $8,479 $8,140 $8,585 $8,847 $8,916 $8,934 $8,952

% of Sales 59.7% 62.7% 63.6% 71.5% 70.3% 72.3% 72.9% 73.3% 73.4% 73.5% Direct Operating Expense $4,272 $4,337 $4,227 $3,988 $3,719 $3,488 $3,420 $3,363 $3,328 $3,293

% of Sales 34.3% 34.7% 34.3% 33.6% 32.1% 29.4% 28.2% 27.6% 27.3% 27.0%

SG&A $1,106 $1,100 $1,036 $1,021 $1,153 $1,183 $1,208 $1,212 $1,212 $1,212

% of Sales 8.9% 8.8% 8.4% 8.6% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% Operating Profit $2,065 $2,408 $2,577 $3,470 $3,269 $3,913 $4,219 $4,341 $4,393 $4,447

% of Sales 16.6% 19.2% 20.9% 29.3% 28.2% 32.9% 34.8% 35.7% 36.1% 36.5%

NOPAT $1,342 $1,565 $1,675 $2,256 $2,125 $2,544 $2,742 $2,822 $2,856 $2,891

% of Sales 10.8% 12.5% 13.6% 19.0% 18.4% 21.4% 22.6% 23.2% 23.5% 23.7%

ROIC 21.7% 25.2% 27.0% 36.4% 34.3% 41.0% 44.2% 45.5% 46.1% 46.6%

Debt Maturity

60

$475$700

$1,250

$700$500 $500

$195

$2,081

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

'13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '28

Corporate Debt Maturity Schedule ($ mn)

(Weighted Average Interest Rate 5.51%)

Fixed Floating

Appendix C: Management

61

Scott Sider

President, Vehicle Rental

Elyse Douglas

Chief Financial Officer

Mark P. Frissora

Chairman & CEO

Key Management Biographies

62

Joined Hertz as Treasurer in July 2006 and became CFO in October 2007

Prior to joining Hertz, served as Treasurer of Coty Inc. from 1999 until 2006

Previously served as an Assistant Treasurer of Nabisco from 1995 to 1999. Also served in various

financial services capacities for 12 years at Chase Manhattan Bank (now JPMorgan Chase)

CPA and has three years experience in public accounting

Currently serves as a Director of Assurant Inc.

Name Biography

Joined Hertz as CEO and Director in July 2006; elected as Chairman in January 2007

Prior to joining Hertz, served as Chairman and CEO of Tenneco Inc. (NYSE:TEN) from 2000 and

as President of the automotive operations of Tenneco Inc. from 1999 to 2006. From 1996 to 1999,

held various positions within Tenneco Inc.'s automotive operations

Previously worked at Aeroquip Vickers, General Electric, and Philips Lighting Company

Currently serves as a Director of Walgreen Co. and Delphi Automotive PLC

Joined Hertz in 1983 and currently serves as President, Car Rental and Leasing, the Americas

Also oversees the fleet planning and re-marketing functions for the Americas

Has held several senior management positions in the U.S. car rental business since 1983, including

Manhattan Area Manager, Vice President of the New England, West Central and Western Regions

and, since 2008, Vice President and President, Off-Airport Operations for North America

Track Record vs. Management Guidance

63

Guidance

2007 2008 2009 2010 2011 2012

Revenue $8,500-$8,600 $8,900-$9,000 no guidance $7,400-$7,600 $7,950-$8,100 $8,850-$8,950

Corporate EBITDA $1,540-$1,570 $1,575-$1,615 no guidance $1,045-$1,060 $1,265-$1,305 $1,520-$1,590

Adjusted EPS $1.15-1.22 $1.38-1.44 no guidance $0.37-0.39 $0.75-$0.81 $1.16-$1.26

Actual

2007 2008 2009 2010 2011 2012

Revenue $8,686 $8,525 $7,102 $7,563 $8,298 $9,021

Corporate EBITDA $1,542 $1,100 $980 $1,101 $1,390 $1,636

Adjusted EPS $1.26 $0.42 $0.29 $0.52 $0.97 $1.33

Management has proven to be very conservative in its financial guidance. Since CEO Mark Frissora

joined Hertz in July 2006, management has beat the high end of its guidance every year, except in 2008

We believe management's 2013 estimates are extremely conservative

Management's Consensus

Guidance Estimates

Revenue $10,850-$10,950 $10,898

Corporate EBITDA $2,210-$2,270 $2,212

Adjusted EPS $1.82-1.92 $1.89

2013

Track Record vs. Consensus Estimates

64

Since CEO Mark Frissora took office in July 2006, Hertz has beat consensus estimates 21 of the past 25

quarters, including the last 15 quarters in a row

Actual Consensus Beat Beat / Actual Consensus Beat Beat /

Period Result Estimate Consensus Miss % Period Result Estimate Consensus Miss %

Q4 12 $0.33 $0.31 yes 5% Q3 09 $0.31 $0.22 yes 41%

Q3 12 $0.63 $0.61 yes 4% Q2 09 $0.12 $0.11 yes 12%

Q2 12 $0.35 $0.32 yes 9% Q1 09 ($0.25) ($0.22) no (14%)

Q1 12 $0.05 $0.00 yes 2,400% Q4 08 ($0.22) $0.07 no nm

Q4 11 $0.24 $0.20 yes 20% Q3 08 $0.33 $0.53 no (38%)

Q3 11 $0.51 $0.50 yes 3% Q2 08 $0.30 $0.31 no (4%)

Q2 11 $0.26 $0.21 yes 22% Q1 08 $0.02 $0.01 yes 300%

Q1 11 ($0.03) ($0.04) yes 27% Q4 07 $0.29 $0.26 yes 12%

Q4 10 $0.10 $0.07 yes 37% Q3 07 $0.65 $0.57 yes 15%

Q3 10 $0.40 $0.37 yes 7% Q2 07 $0.30 $0.26 yes 14%

Q2 10 $0.14 $0.12 yes 18% Q1 07 $0.02 ($0.05) yes nm

Q1 10 ($0.12) ($0.13) yes 8% Q4 06 $0.14 $0.13 yes 12%

Q4 09 $0.06 $0.01 yes 500%

Given management's impressive track record, we believe they

are extremely conservative in nature and the $600 million

Dollar Thrifty synergies estimates is very achievable

Management's Incentives Aligned with Shareholders

65

EVA Weighting in Incentive Comp Increasing

Cash Incentives Aligned with Shareholders

Based 40% on Economic Value Added (“EVA”).

This incentive was introduced in 2010 and increased

in 2011

– Increases in EVA are highly correlated with

shareholder returns

– The increased weighting reflects management's

confidence in generating returns on capital

above its cost of capital over the long term

– $300 million of incremental EVA has been

generated since 2009

– Hertz's top 400 managers are paid based on

EVA

Based 40% on adjusted pre-tax income

Based 20% on revenue

Stock Incentives Aligned with Shareholders

CEO Mark Frissora owns 1.4% of the company

New focus on EVA reflects structurally healthier industry and company

0%

30%

40% 40%

0%

10%

20%

30%

40%

50%

2009 2010 2011 2012

EV

A W

eigh

tin

g

“We have a very EVA/asset-light

strategy focus in the company

today.”

“We have a very positive

movement in economic value

added, 40% of my bonus and the

top 400 managers in the

Company is tied to EVA.”


“I think the competitors have all

settled on the market share

numbers that they're at right now.

I don't think anyone in the

industry is looking to cut price.

The fleets right now are

adequate, so we feel pretty good

about the fact that the industry is

very rational.”


Compensation Incentives

Appendix D: Ownership

66

Private Equity Ownership

67

In December 2005, Clayton, Dubilier & Rice (CDR), The

Carlyle Group (Carlyle), and Merrill Lynch (collectively, the

“Sponsors”) acquired Hertz from Ford Holdings for $5.6

billion ($2.3 billion in equity)

Over the past three years, the company's Private Equity

Sponsors have been gradually divesting their stakes

In the past six months, the Sponsors sold 110 million,

reducing their stake from 38% to 13%

72%

55% 55% 51% 51%

38%

26%

13%

0%

20%

40%

60%

80%

2006 2007 2008 2009 2010 2011 2012 2013

Sponsors Ownership %

Sponsors Investment History

The Sponsors have been invested in Hertz since 2005 and have generated a strong return on its investment

Dec-05 Jun-06 Nov-06 Jun-07 May-09 Mar-11 Dec-12 Mar-13 Apr-13

Investment ($2,300) ($200)

Special Dividend $991 $260 Sponsors' IRR 33%

Shares Sold $1,111 $782 $789 $1,209 Cash-on-Cash Return 2.6x

Remaining Shares $1,316

Total Cash Flows ($2,300) $991 $260 $1,111 ($200) $782 $789 $1,209 $1,316

Current Shareholder Base

68

Market % of Market % of

Investor Shares Value CSO Investor Shares Value CSO

Wellington Management 44.4 $1,053 11.1% SRS Investment Management 6.0 $142 1.5%

Clayton, Dubilier & Rice 22.8 542 5.7% BNP Paribas Investment Partners 5.9 140 1.5%

Carlyle Group 20.3 482 5.1% S.A.C. Capital 5.7 136 1.4%

The Vanguard Group 17.6 418 4.4% Merrill Lynch 5.5 131 1.4%

Wells Capital Management 15.9 378 4.0% Senator Investment Group 5.3 126 1.3%

BlackRock 15.5 369 3.9% State Street Global Advisors 4.7 112 1.2%

T. Rowe Price 14.4 342 3.6% Systematic Financial Management 4.5 108 1.1%

Highbridge Capital Management 14.1 334 3.5% Fir Tree Partners 3.9 92 1.0%

York Capital Management 11.7 276 2.9% Valinor Management 3.5 82 0.9%

Lord, Abbett & Co. 10.5 250 2.6% The Roosevelt Investment Group 3.4 82 0.9%

UBS Global Asset Management 9.6 229 2.4% Norges Bank Investment Management 3.4 81 0.9%

Columbia Wanger Asset Management 9.1 217 2.3% Fidelity Investments 3.4 81 0.9%

Discovery Capital Management 7.5 178 1.9% Goldman Sachs 3.3 79 0.8%

Owl Creek Asset Management 7.3 174 1.8% Westchester Capital Management 3.3 78 0.8%

Columbus Circle Investors 6.6 157 1.7% Columbia Management 3.1 73 0.8%

Key Shareholders Summary

Market % of

Investor Shares Value CSO

PE Owners (CD&R, Carlyle, Merrill Lynch) 48.7 1,155 12.2%

CEO Mark Frissora 2.2 53 0.5%

Other Insiders 1.7 39 0.4%

Appendix E: Additional Analysis

69

Industry’s Improved Pricing Sustainable?

70

Today, the U.S. car rental industry has three players that make up 95% of the market: Hertz, Avis, and Enterprise. From

the blatant price signaling in earnings call and conference call transcripts, it is clear that Hertz and Avis are focused on

profitability and keeping the industry’s car rental rates high. The main question is whether or not privately-held

Enterprise will follow.

There are four main reasons why we believe Enterprise will cooperate with Hertz and Avis’ pricing increases:

The industry’s price spoiler has historically been Dollar Thrifty, who is now owned by Hertz

Since the Dollar Thrifty acquisition closed in November 2012, Enterprise has matched the price increases by Avis

and Hertz

It no longer makes sense to lower prices because none of the three remaining players have dominant market share.

If Enterprise lowers prices, Hertz and Avis will follow and no one will gain market share. Lower pricing would

only result in lower profitability for all three players

Due to auto OEM restructurings and more rational car production, car rental companies finally have right-sized

fleets. With utilization rates at all time highs, there is no longer incentive to lower prices to raise utilization rates

1

2

3

4

Rental Car Pricing Sources

71

Hertz and Avis Earnings Calls

“We instituted 2 price increases for January, 2 for February

and 2 effective for March rentals. January pricing was up year-

over-year, more in fact than December was, and our existing

reservations give us a measure of confidence that pricing could

end the quarter being positive.”

– Avis CEO, February 2013

Sell-Side Analysts

Auto Rental News publishes monthly auto rental rate

surveys for six major airports: BOS, MIA, ORD, HOU,

SEA and LAX. The rates are based on weekly surveys

and are published monthly

May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12

Pre-DTG Acquisition (5%) (22%) (19%) (11%) (6%) (4%)

Nov-12 Dec-12 Jan-13 Feb-13 Mar-13

Post-DTG Acquisition 18% 48% 15% 12% 8%

Auto Rental News

USA Today

“Enterprise says rates at some of the top 200 airports their

brands serve were up to 4% higher in February than during

that month last year.”

– USA Today, February 2013

“Avis initiated another price increase effective for Apr 8, which

was quickly followed by Enterprise.”

– Morgan Stanley, March 2013

“Our research suggests rental car pricing in 1Q13 continued to

firm, and was likely up year-over-year throughout the quarter.

In regards to monthly performance, improvements in March

were the strongest of the quarter.”

– Northcoast Research, April 2013

Avis

North Hertz Dollar Thrifty

America US Airport Total

Dec 2012 > +1.0% +1.6% +4.6%

Jan 2013 > +5.0% +6.0% +2.6%

Feb 2013 > +3.0%

Mar 2013 ~ +4.0%

Hertz

Why Hertz Over Avis?

72

Because of the improved pricing environment, we believe both Hertz and Avis are attractive investment opportunities.

However, we favor Hertz over Avis for the following reasons:

Management: Hertz’s CEO Mark Frissora is extremely well-regarded in the industry. Since Frissora joined in July

2006, Hertz has beaten management’s guidance every year except for in 2008 and the company has beaten

consensus estimates for the past 15 quarters in a row. Prior to joining Hertz in July 2006, Frissora had a

phenomenal track record at Tenneco

– During Frissora’s tenure as CEO of Tenneco (1999-2006), the company dramatically improved its operating

efficiency and financial performance, which translated into significant increases in Tenneco’s market

capitalization. In 2004, Tenneco earned the industry’s top award for auto supply companies, which recognized

the company for delivering the highest shareholder returns – 158% in one year and 745% in three years – of

any global automotive supplier

Dollar Thrifty Acquisition: After taking into account synergies, Hertz paid less than 3.0x EBITDA to acquire

Dollar Thrifty, which we believe was a very prudent deal for management

Zipcar Acquisition: In March 2013, Avis acquired Zipcar for $500 million to enter the Hourly Rentals segment.

Hertz acquired technology to implement hourly rental capabilities in its fleet and will have its entire fleet upgraded

with hourly rental technology by 2014 for a fraction of the cost

1

2

3

European Car Rental Market

73

European Car Rental Market Share


Highly fragmented market, with large percentage of

independent and small car-rental companies. Analysts

expect industry to consolidate over the next five years

Plans to implement three brand offering across Europe

Hertz: premium

Dollar Thrifty: mid-tier

Firefly (formerly Advantage): value

Dollar Thrifty opportunity in Europe Other 29%

Avis

Budget

18%Europcar

21%

Hertz 16%

National

Alamo 5%

Sixt 10%

Size of European Car Rental Market (millions) $13,000

Low Base High

Size of Market $13,000 $13,000 $13,000

Dollar Thrifty Market Share 1% 2% 3%

Dollar Thrifty Revenue $130 $260 $390

Pre-Tax Margin 20.0% 22.5% 25.0%

Pre-Tax Income $26 $59 $98

Taxes @ 35% $9 $20 $34

Net Income $17 $38 $63

Shares Outstanding 427 427 427

EPS Impact $0.04 $0.09 $0.15

Economic Downturn

The rental car industry is not as cyclical as intuition would suggest.

During phases of weak demand, car rental companies cut down their fleet size by selling cars

This reduces capacity, balancing supply-demand and keeping pricing stable

Hertz has been profitable through business cycles

During 2008 and 2009, Hertz generated pre-tax income of $237 and $199 respectively by reducing fleet size by

1% and 10% respectively to maintain supply-demand balance

Furthermore, Hertz's mix shift to off-airport locations, especially the non-cyclical insurance market, mitigates risk

of cyclical earnings and cash flows

74

Debunking Myths About Hertz

75

Myth #1

Car rental is too

capital intensive

Myth #2

Car rental is a

commodity business

Myth #3

Used car prices are

a big unknown

Car rental is a good business, as evidenced by a long history of relatively stable market share

among competitors and a recent history of >10% ROICs.

Hertz's subpar profitability from 2005-2009 was the result of inefficient operations, excess

capacity in U.S. auto makers, and poor fleet management. These issues are now fixed.

Over 37% of transactions were made by Hertz Gold Club Members. Gold Club Members are

3x more likely to rent from Hertz over other companies.

The company has a 99.3% retention rate on corporate contracts.

More than 70% of Hertz's fleet is acquired using fleet debt, which is non-recourse to the

company. Fleet interest expense is akin to cost of goods sold. Acquiring fleet does not tie up

significant capital.

Non-fleet capex is relatively small, especially given technological changes that allow Hertz to

expand its network without major infrastructure investments.

Over 40.5 million used cars were sold in the U.S. in 2012 – the used car market is extremely

large, efficient, and liquid. After 9/11, used car prices rebounded in four months. After the

financial crisis, prices bounced back in six months.

All rental car companies are equally affected by changes in used car prices. If prices fall more

than expected, rental car companies can raise prices to maintain profitability (72% R-squared).

Lower used car prices are correlated with lower new car prices (81% R-squared).

Stock Price History – IPO to Today

76

$0

$5

$10

$15

$20

$25

$30

March 2007: Enterprise

announces Alamo /

National acquisition

2008-2009 Recession

April 2010: Hertz

announces bid for

Dollar Thrifty

November 2012:

Hertz closes Dollar

Thrifty acquisition

March 2009: Hertz

announces Advantage

acquisition

June 2011: Avis

announces Avis

Europe acquisition

February 2013:

Hertz increases

synergies estimate

from $160 million to

$600 million

Competitor Overview – Avis

Car Rental (2012 rev: $7.0bn): Operates through the

Avis, Budget, and ZipCar brands. Rents cars that the

company owns or leases. Maintains a substantial network

of car rental locations both in the United States and

internationally. Rental fleet of 496,000 vehicles. The

company completed more than 29 million vehicle rental

transactions worldwide. 71% of revenue generated on-

airport, 29% generated off-airport

Truck Rental (2012 rev: $0.4bn): Operates through the

Budget brand.

77

Business Description Rental Locations

Revenue Breakdown

With the acquisition of Dollar Thrifty, the Company has

over 10,000 locations across the United States and 17

other countries

Segment Geography

North

America Intl Total

Avis

Company-operated 1,350 1,300 2,650

Licensee 300 2,800 3,100

Total Avis 1,650 4,100 5,750

Budget

Company-operated 1,000 550 1,550

Licensee 400 1,200 1,600

Total Budget 1,400 1,750 3,150

Combined 3,050 5,850 8,900NA

Car

Rental

63%

Intl

Car

Rental

32%

Truck

Rental

5%

NA

68%

Intl

32%

Fit with Pershing Square Criteria

78

Criteria Ideal Acceptable Hertz

Expected Profit ($MM) $300+ $150+ $300+

Expected Return (IRR) 40%+ 25%+ 50%+

Upside/Downside 4 to 1 3 to 1 2.6 to 1

Realization Horizon 1 year 2 years 1 year

Target TEV $5bn+ $2bn+ $16bn

Buy Liquidity 2 months < 3 months 1.5 months

Sell Liquidity 2 months < 3 months 1.5 months

Domicle Domestic (English) Foreign (English) Domestic (English)

Strategy Value/Large MoS Value/Free Growth Value/Free Growth

Corporate Resilence Intrinsic Extrinsic/Deep Value Intrinsic

Governance Uncontrolled Rational Large Shareholder Uncontrolled

Stance Passive Active Passive

Value Ascertainability High Moderate High

Appendix F: Downside Case

Financials

79

Model Summary – Downside Case

80


2008 2009 2010 2011 2012 2013e 2014e 2015e 2016e 2017e


Total Revenue $8,525 $7,102 $7,563 $8,298 $9,021 $10,814 $11,192 $11,668 $11,985 $12,325


Car Rental 0.8% (12.8%) 8.5% 9.2% 7.8% 22.3% 3.2% 4.2% 2.8% 2.9%


EBITDA 1,240 998 1,089 1,356 1,607 2,033 2,261 2,429 2,516 2,613

EBITDA Margin 14.5% 14.1% 14.4% 16.3% 17.8% 18.8% 20.2% 20.8% 21.0% 21.2%


EBT 238 199 347 681 901 1,118 1,343 1,593 1,696 1,828

EBT Margin 2.8% 2.8% 4.6% 8.2% 10.0% 10.3% 12.0% 13.7% 14.2% 14.8%

Car Rental 4.2% 7.8% 9.9% 12.0% 13.4% 15.5% 16.8% 17.5% 17.7% 17.9%


Cash Tax Expense 81 68 118 231 306 380 457 542 577 622

Net Income on Operating Basis 136 117 212 430 595 738 886 1,051 1,120 1,207

EPS $0.42 $0.31 $0.51 $0.97 $1.33 $1.59 $1.90 $2.24 $2.38 $2.55

EPS Growth nm (25.5%) 63.6% 88.0% 37.4% 19.8% 19.5% 18.0% 6.0% 7.2%


Net Debt 3,260 3,339 3,249 3,465 5,440 4,582 3,253 1,619 (156) (2,075)



Return on Equity 9.3% 5.6% 10.1% 19.2% 23.7% 21.0% 20.8% 20.4% 18.5% 17.1%


Return on Assets 2.7% 2.5% 3.0% 3.6% 3.3% 4.3% 4.9% 5.3% 5.5% 5.9%

Cash Flow Metrics


Capex 1,317 1,579 1,063 1,832 2,663 2,604 2,740 2,905 2,977 3,051

FCF 779 196 1,146 402 55 859 1,329 1,634 1,775 1,919

Income Statement – Downside Case

81


2008 2009 2010 2011 2012 2013e 2014e 2015e 2016e 2017e

Net Sales $8,525 $7,102 $7,563 $8,298 $9,021 $10,814 $11,192 $11,668 $11,985 $12,325


Expenses:



SG&A 769 641 665 745 946 1,223 1,362 1,512 1,545 1,580


Interest Income 25 65 12 6 5 6 6 6 6 7


Total Expense 9,907 7,272 7,577 7,974 8,570 9,915 10,075 10,309 10,527 10,741

GAAP Pre-Tax Income (1,382) (171) (15) 324 451 899 1,117 1,360 1,458 1,585




Other charges 1,419 108 89 138 258 0 0 0 0 0




Cash Tax 81 68 118 231 306 380 457 542 577 622


Net Income to Hertz 136 117 212 430 595 738 886 1,051 1,120 1,207

Diluted EPS $0.42 $0.31 $0.51 $0.97 $1.33 $1.59 $1.90 $2.24 $2.38 $2.55



EBITDA Reconciliation – Downside Case

82


2008 2009 2010 2011 2012 2013e 2014e 2015e 2016e 2017e

Car Rental Segment:





























Balance Sheet – Downside Case

83


2008 2009 2010 2011 2012 2013e 2014e 2015e 2016e 2017e

Assets:


Receivables 1,911 1,325 1,357 1,616 1,887 2,412 2,496 2,602 2,673 2,749

Inventory 96 93 87 84 106 127 131 137 140 144


Other Property & Equipment 1,255 1,188 1,164 1,252 1,436 1,457 1,071 539 (44) (684)


Other 287 300 353 422 470 470 470 470 470 470

Total Assets 16,451 16,002 17,345 17,674 23,286 23,936 24,004 24,031 23,656 23,229

Liabilities & S.E.:

Payables 931 659 954 897 999 1,198 1,240 1,292 1,327 1,365

Fleet Debt 6,387 5,675 5,476 6,612 8,903 8,636 8,348 7,949 7,507 7,016



Other 1,577 1,410 1,457 1,535 1,631 1,631 1,631 1,631 1,631 1,631




Key Statistics:

Net Debt 3,260 3,339 3,249 3,465 5,440 4,582 3,253 1,619 (156) (2,075)






Cash Flow Statement – Downside Case

84


2008 2009 2010 2011 2012 2013e 2014e 2015e 2016e 2017e


Net Income 136 117 212 430 595 738 886 1,051 1,120 1,207


Other PPE D&A 239 226 219 228 257 297 296 297 293 289


Others (143) (815) (360) (17) (91) - - - - -






Others (79) 35 (1) (30) 90 - - - - -



Proceeds from Debt Issuance, net (816) 523 (799) (1,320) 443 (36) (193) (250) (888) (959)

Proceeds from Rev. Line of Credit 199 (1,126) 1,026 57 1,273 (250) (250) (250)


Dividends Paid - - - - - - - - - -

Others (78) (54) (93) (224) (92) - - - - -

Cash Flow from Financing Act. (695) (129) 134 (1,487) 1,625 (286) (443) (500) (888) (959)

Cash Flow for Year (66) 25 1,231 (1,342) (135) 573 886 1,134 888 959



CFO less Capex (FCF) 779 196 1,146 402 55 859 1,329 1,634 1,775 1,919

Appendix G: Upside Case Financials

85

Model Summary – Upside Case

86


2008 2009 2010 2011 2012 2013e 2014e 2015e 2016e 2017e


Total Revenue $8,525 $7,102 $7,563 $8,298 $9,021 $11,182 $12,078 $12,860 $13,341 $13,863


Car Rental 0.8% (12.8%) 8.5% 9.2% 7.8% 26.8% 8.1% 6.5% 3.8% 4.0%


EBITDA 1,240 998 1,089 1,356 1,607 2,593 3,266 3,505 3,656 3,823

EBITDA Margin 14.5% 14.1% 14.4% 16.3% 17.8% 23.2% 27.0% 27.3% 27.4% 27.6%


EBT 238 199 347 681 901 1,723 2,394 2,746 2,911 3,094

EBT Margin 2.8% 2.8% 4.6% 8.2% 10.0% 15.4% 19.8% 21.4% 21.8% 22.3%

Car Rental 4.2% 7.8% 9.9% 12.0% 13.4% 20.8% 25.1% 25.3% 25.5% 25.7%


Cash Tax Expense 81 68 118 231 306 586 814 934 990 1,052

Net Income on Operating Basis 136 117 212 430 595 1,137 1,580 1,812 1,921 2,042

EPS $0.42 $0.31 $0.51 $0.97 $1.33 $2.45 $3.39 $3.87 $4.08 $4.31

EPS Growth nm (25.5%) 63.6% 88.0% 37.4% 84.6% 38.3% 14.1% 5.5% 5.7%


Net Debt 3,260 3,339 3,249 3,465 5,440 4,139 2,487 618 (1,423) (3,617)



Return on Equity 9.3% 5.6% 10.1% 19.2% 23.7% 30.3% 29.8% 25.5% 21.4% 18.6%


Return on Assets 2.7% 2.5% 3.0% 3.6% 3.3% 5.8% 7.3% 7.6% 7.7% 7.8%

Cash Flow Metrics


Capex 1,317 1,579 1,063 1,832 2,663 2,608 2,788 2,982 3,043 3,107

FCF 779 196 1,146 402 55 1,302 1,652 1,869 2,040 2,195

Income Statement – Upside Case

87


2008 2009 2010 2011 2012 2013e 2014e 2015e 2016e 2017e

Net Sales $8,525 $7,102 $7,563 $8,298 $9,021 $11,182 $12,078 $12,860 $13,341 $13,863


Expenses:



SG&A 769 641 665 745 946 1,361 1,554 1,635 1,685 1,739


Interest Income 25 65 12 6 5 6 7 7 7 8


Total Expense 9,907 7,272 7,577 7,974 8,570 9,683 9,922 10,365 10,688 11,036

GAAP Pre-Tax Income (1,382) (171) (15) 324 451 1,499 2,156 2,495 2,652 2,827




Other charges 1,419 108 89 138 258 0 0 0 0 0




Cash Tax 81 68 118 231 306 586 814 934 990 1,052


Net Income to Hertz 136 117 212 430 595 1,137 1,580 1,812 1,921 2,042

Diluted EPS $0.42 $0.31 $0.51 $0.97 $1.33 $2.45 $3.39 $3.87 $4.08 $4.31



EBITDA Reconciliation – Upside Case

88


2008 2009 2010 2011 2012 2013e 2014e 2015e 2016e 2017e

Car Rental Segment:





























Balance Sheet – Upside Case

89


2008 2009 2010 2011 2012 2013e 2014e 2015e 2016e 2017e

Assets:


Receivables 1,911 1,325 1,357 1,616 1,887 2,178 2,353 2,505 2,599 2,700

Inventory 96 93 87 84 106 131 142 151 156 162


Other Property & Equipment 1,255 1,188 1,164 1,252 1,436 1,457 1,413 1,401 1,360 1,286


Other 287 300 353 422 470 470 470 470 470 470

Total Assets 16,451 16,002 17,345 17,674 23,286 24,012 24,786 25,689 26,538 27,165

Liabilities & S.E.:

Payables 931 659 954 897 999 1,238 1,338 1,424 1,478 1,535

Fleet Debt 6,387 5,675 5,476 6,612 8,903 8,794 8,739 8,697 8,624 8,517



Other 1,577 1,410 1,457 1,535 1,631 1,631 1,631 1,631 1,631 1,631




Key Statistics:

Net Debt 3,260 3,339 3,249 3,465 5,440 4,139 2,487 618 (1,423) (3,617)






Cash Flow Statement – Upside Case

90


2008 2009 2010 2011 2012 2013e 2014e 2015e 2016e 2017e


Net Income 136 117 212 430 595 1,137 1,580 1,812 1,921 2,042


Other PPE D&A 239 226 219 228 257 307 320 327 326 325


Others (143) (815) (360) (17) (91) - - - - -






Others (79) 35 (1) (30) 90 - - - - -



Proceeds from Debt Issuance, net (816) 523 (799) (1,320) 443 (401) (576) (685) (1,020) (1,317)

Proceeds from Rev. Line of Credit 199 (1,126) 1,026 57 1,273 (250) (250) (250)


Dividends Paid - - - - - - - - - -

Others (78) (54) (93) (224) (92) - - - - -

Cash Flow from Financing Act. (695) (129) 134 (1,487) 1,625 (651) (826) (935) (1,020) (1,317)

Cash Flow for Year (66) 25 1,231 (1,342) (135) 651 826 935 1,020 878



CFO less Capex (FCF) 779 196 1,146 402 55 1,302 1,652 1,869 2,040 2,195

Appendix H: Team Member Bios

91

Team Member Bios

Richard Hunt ([email protected])

Richard is a first-year student at Columbia Business School. Richard is Co-President of the

Columbia Student Investment Management Association. Prior to CBS, Richard was a Senior

Financial Analyst at New Constructs.

Richard received a B.B.A. in Economics and Finance from University of Kentucky.

92

Stephen Lieu ([email protected])

Stephen is a first-year student at Columbia Business School. Stephen is Co-President of the

Columbia Student Investment Management Association. Prior to CBS, Stephen worked for four

years in investment banking and private equity.

Stephen received a B.S. in Economics from the Wharton School, University of Pennsylvania.

Rahul Raymoulik ([email protected])

Rahul is a first-year student at Columbia Business School. Prior to business school, Rahul was a

Sector Specialist at Fidelity Investments, initially in Boston and later in Tokyo. Rahul focused

on the media and telecom industries in the U.S. and the technology industry in Asia.

Rahul received a B.S. in Information Science from Northeastern University and an M.S. in

Finance from Boston College.

Thank you for your time!

93

columbia business school's pershing square challenge

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