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Updated from 12:30 p.m.

Market sources say Hertz's upcoming IPO is getting mixed reviews.

The Wall Street firms underwriting the deal, including

Merrill Lynch



Goldman Sachs

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JPMorgan Chase

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, are having a hard time getting institutional investors to pay top dollar for Hertz's shares.

The underwriters have said they hope to price the stock between $16 and $18 a share. But sources say the deal could price at the low end of the range.

Later this week, the New Jersey-based rental company hopes to sell 88 million shares in an initial public offering that could raise up to $1.58 billion.

Investors apparently are balking at the $5.45 billion implied valuation Hertz has given itself.

That's mostly because the company has more debt than it did a year ago, and the private equity investors that are sponsoring the initial public offering have done little to cut operating costs.

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Private-equity firms usually make money by buying a company and cutting costs or reforming the business over a number of years. Depending on the investment, the private equity firm often will pay itself a dividend each year for its work, then sell the restructured business for more than the purchase price.

The IPO is slated to price Wednesday night. Shares are expected to begin trading Thursday on the

New York Stock Exchange

under the ticker symbol HTZ.

The deal comes to market as Merrill Lynch, one of the underwriters and the private equity investors is drawing scruitny in a federal government probe into private equity deals.

A week ago,

The Wall Street Journal

reported that Merrill Lynch's fast-growing private equity division is the latest firm to get snared in the federal inquiry. So far, federal antitrust lawyers have sent letters seeking information about leveraged buyouts to Merrill Lynch and four private equity firms: Carlyle Group, Clayton Dubilier & Rice, Kohlberg Kravis Robert and Silver Lake Partners.

The government antitrust probe is focusing on so-called club deals, in which several private equity firms get together to buy out a company. Government lawyers are trying to determine if these club deals are a way for private equity firms to control the bidding process by offering rival firms a chance to co-invest in other deals.

The allegation is that the resulting lack of competition keeps the takeout price for a company relatively low.

It's not clear whether the Hertz buyout is one that federal investigators are looking into. People familiar with the Justice Department letter say prosecutors haven't singled out any particular transaction and have asked for information about numerous deals dating back to 2003.

Antitrust experts say that proving collusion between bidders is difficult. At the end of the day, many people in the private equity industry believe prosecutors will not take any action.

But the Hertz IPO has been controversial from the start because Merrill Lynch, Carlyle and Clayton Dubilier -- the private equity club that arranged the $15 billion buyout -- stand to receive a $421.5 million special cash dividend from the proceeds of the IPO. In addition, much of the rest of the proceeds from the offering will go toward paying down a hefty loan Hertz took out to finance an earlier $1 billion special dividend for the private equity consortium.

In all, the private equity consortium sank just $2.3 billion of their own money into the deal to buy Hertz from


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last December. The $15 billion deal was financed with a mountain of new debt, which added to the rental car company's pre-existing $9.4 billion in debt.