Hertz Investor Fir Tree Urges Replacing CEO; Icahn Reveals Stake

Aug 21, 2014 9:35 am ET

Aug. 20 (Bloomberg) -- Hertz Global Holdings Inc. investor Fir Tree Partners, which holds more than 3 percent of the stock, is urging the company’s board to replace Chief Executive Officer Mark Frissora, while billionaire Carl Icahn disclosed a stake and said he may seek representation on the board.

Other investors holding more than 4 percent of Hertz also are urging the board to replace Frissora, according to people with knowledge of the matter who asked not to be identified because the discussions with Hertz have been private. These and other investors have spoken with Scott Thompson, the former CEO of Dollar Thrifty Automotive Group Inc., to replace Frissora, the people said.

Icahn plans to seek meetings with the company and may pursue representation on the board, according to the filing. He wants to discuss accounting issues and operational failures related to the company’s underperformance relative to peers and a “lack of confidence in management,” according to the filing.

“The CEO has had some serious missteps, and it’s time for a change,” Scott Tagliarino, a spokesman for Fir Tree Partners, said in a telephone interview. “We believe Hertz has an incredible brand and an opportunity to show leadership in the car-rental industry. We look to work constructively with management and the board to address these issues.”

Fir Tree, which holds 13.8 million Hertz shares, said Frissora, who is also chairman, is responsible for accounting and management missteps that have weighed on the shares. The stock plunged almost 13 percent today after Hertz withdrew its financial forecasts for the year and said that results will be “well below” earlier projections. Richard Broome, a company spokesman, declined to comment on the investor’s concerns.

Suggested Successor

Hertz hasn’t reported financial results from the first or second quarters and has said that it can no longer rely on its past three years of financial statements.

Shares of the rental-car company fell 3.9 percent to $30.33 today after reaching $27.47. The shares had risen 10 percent this year through yesterday, while Avis Budget Group Inc. gained 70 percent.

Icahn, 78, who became an activist investor after gaining fame as a corporate raider in the 1980s, has recently taken large stakes at companies including Gannett Co., Apple Inc., Family Dollar Stores Inc., Netflix Inc., EBay Inc. and Dell Inc., agitating management and directors for shareholder- friendly changes.

The New York-based investor is worth more than $23 billion, according to Bloomberg Billionaires, and primarily invests his own fortune, rather than relying on money from outsiders.

Industry Consolidation

Hertz should be reaping the benefits of the consolidation it sowed in the rental-car industry over the last few years. Its acquisition of Dollar Thrifty shrunk the number of major rental- car firms to three from four. Those four, including closely held Enterprise Holdings Inc., controlled about 98 percent of airport car rentals in the U.S., the Federal Trade Commission said in 2012 when it was reviewing the combination.

Hertz also said yesterday that Scott Sider is retiring as group president of Rent A Car Americas and that lead independent director George Tamke is retiring from the board. It designated Linda Fayne Levinson as independent lead director.

The elevation of Levinson to lead director suggests the Hertz board is looking for someone to sort through the situation and take control, said Jay Lorsch, a corporate governance professor at the Harvard Business School.

‘Tough’ Director

“She is tough,” he said in an interview. “They were probably looking for someone to take charge. They’re picking someone who has both the breadth of business experience and the determination to get it right.”

Levinson’s experience, including as one of the first female partners at McKinsey & Co., show her gravitas, he said. She has a master’s degree in Russian literature from Harvard.

“Usually the appointment of a new lead director means the board sees a complex problem and they want someone to take charge, figure out what’s going on and get to the bottom of it,” Lorsch said. “My guess would be, with Linda, that’s what they’re trying to do.”

The changes on the board, by themselves, suggest the situation is getting serious, said Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware.

“Any time you have unexpected retirements from a board, it suggests there is some turmoil,” he said. “Any time there is a new lead director, it’s something to pay attention to.”

Recent Changes

Sider is the second top executive to leave in the last six months. Tom Kennedy was named Hertz’s CFO in December, replacing Elyse Douglas, who had been in that roles since 2007. Douglas stepped down in October, the company said, because she didn’t want to move to Florida, where the company moved its headquarters late last year.

The accounting problems also may delay the spinoff of Hertz’s equipment-rental unit, originally planned for early next year, the company said in June. In that transaction, the car- rental business would keep the Hertz name and get cash proceeds of about $2.5 billion to pay down debt and support a $1 billion share buyback.

--With assistance from Jeff Green in Southfield, Michigan.