LogFAQs > #940563506

Some back of the envelope calculations with Hertz. Please take with a huge grain of salt. There are approximately 150 million shares now and Hertz is proposing adding another 264 million or so. Call it a 40 to 60 ratio for simplicity.

Pre-Covid, HTZ was trading at $20, which gives us a market cap of approximately $3 billion. Call this the value of Hertz after recovery from coronavirus with no risk of bankruptcy. Supposing they are able to sell the 264 million shares at $3, that would raise around $800 million. Let's say that they use $300 million to pay off imminent debts to stay afloat, and cancel the bankruptcy. Now the total equity should be $3.5 billion, meaning the undiluted share price would be about $23. But it's been diluted at this point, we multiply by 0.4 and get.....a little over $9.

It gets better. If the shares are worth $9 the company will be selling them for a lot more than $3 - suppose the market reacts immediately to good news and they sell them for $9 - then what happens? The above analysis is the same except that now the company is bringing in around $2.4 billion instead of $800 million, so we add the extra $1.6 billion to the equity and reach $5.1 billion, or an undiluted share price of $34 or a diluted share price of $13.6.

But of course, that's not all! If the shares are worth $13.6, why should the company only receive $9 for them? It turns out that in this model there is a breakeven point where the amount the company pays for the stock is equal to the diluted share price. We have the equation:

Diluted Share Price = $7.2 + 0.6 * Diluted Share Price, where $7.2 represents the value of an existing share based on the $3 billion market cap, less $300 million to pay immediate creditors, after the dilution but without considering the additional cash on the company's books. This equation when solved yields..... Diluted Share Price = $18.

Please take this with a grain of salt. This analysis is dependent on the company being able to raise more than $4 billion through share sales. Also, I pulled the 300 million to take care of immediately due debts out of thin air - I don't know how much HTZ needs to escape bankruptcy. But I think the basic idea is that if the court will allow this plan, Hertz should either spike massively or go to zero, depending on whether it's able to sell its shares. It should be hard for it to stay where it is now.

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September 1, 2003; November 4, 2007; September 2, 2013
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