Hertz Global Holdings (OTCMKTS:HTZGQ) announced on Nov. 25 that it had an agreement to sell its Donlen fleet management business to Athene Holding (NYSE:ATH) for at least $875 million in cash. While it could be good news for shareholders of Athene, it should not in any way be construed as good news for owners of Hertz stock.
Not by a longshot. Here’s why.
There’s No There There When It Comes to Hertz Stock
No matter how hard the lawyers try, Hertz stock does not want to die a natural death. I can’t believe investors still care. I don’t know how many ways there are to tell InvestorPlace readers that Hertz the company is a completely different beast than Hertz the stock.
Hertz chief executive officer Paul Stone had some positive words about its restructuring in its press release announcing the sale.
“The agreement to sell our Donlen business is another significant accomplishment for Hertz during our financial restructuring, following the $1.65 billion debtor-in-possession financing and $4 billion fleet financing recently approved by the Bankruptcy Court,” Stone stated on Nov. 25.
Hertz creditors’ good news is that the “stalking horse” bid means it could actually get more than $875 million from the sale process. Again, that’s good news for the company and its employees. It’s meaningless for shareholders.
InvestorPlace contributor Ian Bezek recently discussed some of the moves Hertz has made to position the company post-bankruptcy.
“Part of the reason why HTZ stock has presumably rallied recently is that the operating company is making new business dealings. For example, last month, Hertz secured $4 billion in new loans from private equity. It will be using those loans to purchase as many as 229,000 new vehicles to keep its fleet inviting for customers,” Bezek wrote on Dec. 14.
As my colleague points out, the cars aren’t going directly on Hertz’s balance sheet. They’ll be held within a separate off-balance sheet structure to ensure the company’s lenders maintain control of the purse strings after the 229,000 vehicles are purchased and deployed.
The reality is this move, as with the sale of Donlen, has nothing to do with the stockholders and everything to do with ensuring the creditors have a shot at recouping their credit losses.
If you own Hertz stock and aren’t a daytrader, you have no business continuing to ride out this storyline. As Bezek states, we all know how it ends. Not well.
Should You Buy ATH Stock?
Athene’s business is relatively straightforward. Large companies deposit funds with it in return for future annuity payments for their employee’s retirements. Athene takes those deposits in assets that deliver higher returns.
For example, it just announced a pension buyout agreement with General Electric (NYSE:GE) that will see its life insurance subsidiaries provide annuity benefits to 70,000 GE retirees receiving benefits from GE’s pension plan. In return, GE has transferred $1.7 billion in pension obligations to Athene.
Athene turns around and invests the $1.7 billion in assets like Donlen Fleet Management. Since entering this market, it’s amassed $16 billion in pension obligations for more than 275,000 annuitants. As with the $1.7 billion, it reinvested much of the $16 billion in higher-earning assets.
So, in theory, it’s got an excellent long-term business.
Over the past five years, Athene’s revenues have grown from $2.6 billion in 2015 to $16.3 billion in 2019. On the bottom line, profits have grown from $595 million in 2015 to $2.2 billion in 2019.
And yet, since it went public in December 2016 at $40 a share, it’s made investors precisely 6.3% over 36 months. In the same period, the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) achieved a 64% return.
Why do you think its former private equity owner — Apollo Global Management (NYSE:APO) — still owns 30% of the company? They’re merely trying to get a decent return on investment.
Care to guess how APO stock has performed over the past three years? It’s made 133% for its shareholders.
So, if you’re going to do anything from this article, I would suggest you buy APO to benefit should ATH stock make a move in 2021 and beyond.
As for Hertz stock, it’s best to turn the page.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
