Updated from 1:26 p.m. ET to include closing share prices
NEW YORK (TheStreet) -- Hertz (HTZ) said Tuesday it will spin off its equipment rental business, Hertz Equipment Rental, in an effort to refocus on the company's car rental business. The spinoff of Hertz' equipment rental business is expected to generate $2.5 billion in cash that will be used to pay down the company's debt and support a newly approved $1 billion share repurchase.
Overall, the spinoff may dramatically alter Hertz' capital structure, putting its leverage in line with competitors, while providing Wall Street with a far more straightforward car rental business. The move also comes as Hertz provided investors with a weaker-than-expected outlook for 2014.
Tuesday's decision to spin the equipment rental business may help Hertz weather a rough patch in the car rental market, while also insulating the company and its management from activist investors.
Hertz's newly announced share repurchase could allow the car rental chain to buy back 20% of its outstanding shares, the company said in a Tuesday statement. Hertz also raised the prospect of additional returns of capital to shareholders as a result of the company's targeted net debt ratio of 2.5-to-3.5 times earnings before interest, taxes, depreciation and amortization (EBITDA).
Those targets indicate Hertz could see its leverage rise from year-end net-debt of 2.9 times EBITDA, putting the company closer in line with Avis Budget (CAR). Analysts had forecast Hertz net debt-to-EBITDA could fall in the coming year without a change to its capital planning.