(Bloomberg) — Hertz Global Holdings Inc., the car-rental company founded with a dozen Ford Model Ts over a century ago, filed for bankruptcy late Friday after sweeping travel restrictions and the global economic collapse destroyed demand for its vehicles.The Chapter 11 filing in Delaware allows Hertz to keep operating while it devises a plan to pay creditors and turn around the business. The second-largest U.S car-rental-car company does not need debtor-in-possession financing for now, according to a person familiar with the matter, because it has more than $1 billion cash on hand.Hertz’s court petition listed about $25.8 billion in assets and $24.4 billion of debts, and its biggest creditors include IBM Corp. and Lyft Inc. After the coronavirus pandemic decimated revenue, the car renter sought relief from lenders and a bailout from the U.S. Treasury Department. But while it managed to negotiate a short-term reprieve from creditors, it wasn’t able to work out longer-term agreements.“With the severity of the Covid-19 impact on our business, and the uncertainty of when travel and the economy will rebound, we need to take further steps to weather a potentially prolonged recovery,” Paul Stone, Hertz’s chief executive officer, said in a statement. The Estero, Florida-based company named him its fifth CEO since 2014 just four days before the bankruptcy filing.Related: Hertz Runs Into Cash Crunch After Years of Management TumultAnalysts have warned of ramifications for the broader auto industry from a Hertz bankruptcy. The company has a fleet of about 400,000 cars in the U.S. that are not subject to repurchase agreements with vehicle manufacturers and could be liquidated, Michael Ward, an analyst at Benchmark Co., wrote in a report last week.“The risk for the auto sector occurs if the creditors of the debt that is secured by the vehicles decides to liquidate the fleet to repay the bonds,” Ward wrote on May 14. The impact those sales may have on used-car prices could be minimized by the sale of those vehicles taking place over the course of several months, he said.Cash SituationHertz said it has enough cash for now to support its operations, which include Hertz, Dollar, Thrifty, Firefly, Hertz Car Sales, and Donlen. But it might need to raise more, perhaps through added borrowings while the bankruptcy process moves forward.The Chapter 11 proceedings involve the company’s U.S. and Canadian subsidiaries and don’t include its international operations in Europe, Australia or New Zealand.“Hertz may have little choice but to scale down its operations and sell assets to pay down its significant secured debt,” Joseph Acosta, a partner in the bankruptcy practice at the law firm Dorsey & Whitney, said in an email. “Hopefully, the restructuring expenses will not bury the company in the process.”The company began laying off workers to preserve cash in March as emergency measures to contain the virus halted business and leisure travel. Hertz disclosed on April 29 that it had missed substantial lease payments related to its rental cars.Used-Car CollapseWhile all travel-related companies have been hurt by the pandemic, a big part of what’s weighed on Hertz is its strategy of owning or leasing a large portion of its fleet outright instead of acquiring them through buyback agreements with manufacturers. Hertz typically responds to falling demand by selling cars from its fleet, so it has been hit especially hard by the drop in prices at used-car auctions.White & Case LLP is the company’s legal adviser, Moelis & Co. is the investment banker, and FTI Consulting Inc. is providing financial advice. Billionaire investor Carl Icahn holds a 39% equity stake.Hertz, originally known as Rent-a-Car Inc., was founded in Chicago in 1918. It was operating 12,400 locations worldwide as of February.(Updates with absence of debtor-in-possession financing in the second paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Corporate tax cut by July unlikely
By Charmaine A. Tadalan and Jenina P. Ibañez Reporters
AN IMMEDIATE REDUCTION of the corporate income tax rate to 25% by July is unlikely, as the Senate prioritized other measures over the Corporate Recovery and Tax Incentives for Enterprises Act (CREATE) bill on Wednesday.
“We focused on the Bayanihan (2) bill,” Senate President Pro Tempore Ralph G. Recto said in a mobile phone message on Wednesday.
The CREATE bill is the revised version of the Corporate Income Tax and Incentives Rationalization Act, which now provides for an outright 5% reduction of the corporate income tax to 25% from 30%, as well as flexible tax and nontax incentives for investors.
Finance officials earlier hoped the lower tax would take effect by July, as part of efforts to stimulate an economy battered by a coronavirus pandemic.
The Department of Finance (DoF) earlier estimated the 5% tax reduction will cut government revenues by P42 billion in the second half if CREATE is implemented by July, and by another P625 billion in the next five years. The DoF hopes these foregone revenues will drive economic activity and allow businesses to continue funding their operations and keep their employees.
Congress was scheduled to adjourn sine die on Wednesday, but decided to hold another session today.
Asked whether the measure may still hurdle the Senate before the year ends, Mr. Recto said “yes, with amendments.”
Senate President Vicente C. Sotto III last week said the proposed CREATE was among the priorities of the chamber, but the Senate’s session agenda for Wednesday did not include the bill.
Under CREATE, the tax will be further reduced by 1 percentage point annually beginning 2023 until 2027. In its previous version, the bill proposed to gradually reduce the rate until it reaches 20% in 2029.
Albay Representative and House Ways and Means Committee Chairman Jose Ma. Clemente S. Salceda said in a separate message the measure might still be tackled in a “special session.”
“It’s up to the Executive, which we await,” Mr. Salceda said.
Finance Assistant Secretary Ma. Teresa S. Habitan said the DoF may request for a special session for the passage of the CREATE bill.
“We’re hoping it will be part of what is passed in the regular session. Otherwise, we might request for a special session,” she said in a mobile phone message.
The CREATE bill was among the recommendations of state economic managers to revive the economy. More than 30 local and foreign business groups have also supported the passage of the bill.
Mr. Sotto, however, said he doubts the measure would be taken up in a special session. He also said the Constitution bars Congress from holding sessions 30 days before the opening of the next regular session on July 27. This gives them only until June 8, should a special session be called.
Mr. Sotto said they can hold a session as late as June 8, but others are saying the latest they can do it is on June 11, taking into account some holidays. “To play safe… the last is June 8,” he said in an online briefing.
Meanwhile, the Philippine Ecozones Association (PHILEA) is backing the retention of the current incentives system for an additional 5 to 10 years, aligning itself with foreign and export groups.
PHILEA in a letter addressed to the Finance department and Senator Pilar Juliana S. Cayetano said retaining the incentives system during the pandemic or a specified and “reasonable” period would help the country be competitive in attracting investments from companies moving operations out of China.
The position of PHILEA, along with foreign and export groups, stand in contrast with other business groups that have supported the immediate passage of CREATE. The bill also rationalizes tax incentives, granting a transition period of up to nine years.
PHILEA, which represents 12 member companies and 20 industrial estates, said the Finance department must release a statement that existing incentives under the Philippine Economic Zone Authority should be retained for at least five years and ideally ten years.
“The statement must be forceful and irreversible in order to erase doubts that have been created in the minds of many companies both about the removal or reduction of incentives and the image that the Philippines is mercurial in its policy-making,” the association said.
PHILEA added that incentives timelines should be improved, noting that the Philippines is behind some neighboring countries in terms of the number of years incentives are offered.
The Joint Foreign Chambers of Commerce of the Philippines, along with an outsourcing industry group and electronics and wearables export groups, had said in their own position paper that incentives allowing companies to pay 5% tax on gross income earned in lieu of other national and local taxes should be retained for five years prior to sunset provisions.
The same groups back the immediate reduction of corporate income tax to 25% and pushed for accelerating reduction to 20% by 2025.
But PHILEA said that this reduction would be a welcome development for domestic manufacturers, but for exporters, it is more important to retain the existing tax incentives.
PEZA said it would recommend amendments for CREATE to apply only to domestic companies and small businesses, retaining status quo incentives for export companies.
PHILEA also asked that the Finance and Trade departments appoint a private sector counterpart in efforts to attract companies moving factory production out of China.
“This should preferably be a Philippine entity that can represent the country as a knowledgeable citizen. The assignment of the investment house would be to mobilize the players in the ecozone industry, coordinate with the relevant Government agencies, and identify and organize other factors that will give the country an advantage over its competitors,” the association said.
PHILEA added the government should create a major public relations program and to streamline industrial parks applications for ecozone approval to accelerate a “tedious and slow moving” process.
“A deadline for processing in each agency should be established and rigorously followed.”
How a hair-care company went from salon supplier to sanitizer powerhouse
When AG Hair moved into its new, 70,000-sq.-foot, state-of-the-art manufacturing facility in Coquitlam, B.C., two years ago, it was part of a plan to supercharge expansion of its hair care product line to salons in international markets. Europe was next on its list. Then COVID-19 hit.
Not only was the European expansion put on hold, but salons in major markets across Canada and the United States were temporarily closed. Very few were purchasing hair products, so manufacturing was halted in mid-March, leaving most of the company’s 82 employees out of work.
AG Hair could have waited out the pandemic but instead decided to lean into its entrepreneurial culture and make a sharp pivot. It began providing hand-sanitizing products for front-line health-care workers, addressing a global shortage.
“We realized there was this massive need for health-care professionals, and we wanted to make a difference and be able to provide them with the products they needed,” says AG Hair CEO Graham Fraser.
AG Hair received Canadian and U.S. approvals a week after applying for the licences needed to make sanitizer, and produced samples to show local authorities within 48 hours.
“That rapid response time, and the fact that we had gone through all of the Health Canada regulatory hurdles, showed [the local health authorities] that we were a partner they could trust and someone they could look to, to deliver the products they needed,” Fraser says.
Within a month, the company started pumping out the products, first for the health-care industry, then for consumers on its own website and on Amazon. About 10 per cent of AG Hair’s hand-sanitizer production also went to people in need, as identified by organizations such as United Way.
Parallel 49 Brewing Company is also using AG Hair’s Coquitlam manufacturing facility to produce its own blend of liquid hand sanitizer for front-line health and emergency workers, in partnership with the B.C. government.
Fraser credits his team for its energy and creativity in making the hand-sanitizer production happen, and helping put AG Hair staff back to work.
“We realized we had an opportunity . . . and then it became this incredible, almost war-room mentality and collaboration with our owners, our executive team and our people to say, ‘How are we going to get through this?’ ” Fraser recalls. “I think our success speaks to the type of people we have and the entrepreneurial spirit of pursuing every avenue we have, understanding how we can produce the products and making it happen.”
AG Hair’s commitment to investing in future growth is a big part of what makes it a Best Managed company, says Nicole Coleman, a partner at Deloitte and co-lead of its Best Managed Program in B.C.
“Capability and innovation come through quite strongly with this company,” says Coleman, who is also AG Hair’s coach at Deloitte. “I don’t think they would be able to pivot as quickly if they weren’t so strategic and had the internal capabilities to do it.”
The manufacturing facility was a big investment, but one Coleman says has already paid dividends.
“They were looking forward with a strategic plan in mind about future growth and how they could expand, rather than just focusing on the day to day,” she says. “Best Managed companies are always pushing the envelope and are conscious about planning for the future.”
AG Hair was founded in Vancouver in 1989 by hairstylist John Davis and graphic artist Lotte Davis. The husband-and-wife team began bottling hair products in their basement and selling them direct to salons from the back of a station wagon.
The company eventually moved its manufacturing off-site, to a third party. One day, John went to watch the operations and was surprised to see salt being poured into the mixture. Although he was told salt is commonly used as a thickener, he didn’t like the potential side effects of dry hair and skin.
It was at that moment John decided the company would oversee its own manufacturing. “Through that experience, John also became an expert in product development,” says Fraser, who came to the company in 2000 as director of sales.
After having worked for more than two decades at PepsiCo and Kraft Foods, Fraser was eager to work at a smaller, more agile company where he felt he could help make a difference.
“It was perfect because I got to bring a lot of structure and process that I learned in those organizations, but I also learned an awful lot about being an entrepreneur from John and Lotte: that sense of urgency, the decision-making process, the need to get things done and drive things forward and pursue opportunities,” he says.
Fraser has helped drive AG Hair’s expansion into the U.S. and internationally, including Australia, Taiwan, and Central and South America. A portion of its sales go to One Girl Can, a charity founded by Lotte that provides schooling, education and mentoring for girls in sub-Saharan Africa.
Fraser also oversees the development of new, trending products, including a new deep-conditioning hair mask made with 98 per cent plant-based and natural ingredients. Hand-sanitizing spray and gel will be the latest addition to the company’s product lineup.
“We don’t see the demand [for hand-sanitizing products] going away,” he says. “As the isolation policies start to get lifted, people are going to need forms of security and protocols as they get back into regular life and work. We see there’s going to be a need for these types of products long-term.”
This article appears in print in the June 2020 issue of Maclean’s magazine with the headline, “Working out the kinks.” Subscribe to the monthly print magazine here.
Tiffany Dives After Report That Deal With LVMH Is Uncertain
(Bloomberg) — Tiffany & Co. plunged after Women’s Wear Daily reported LVMH’s $16 billion deal to buy the jeweler is uncertain as the U.S. economy faces widespread upheaval.Board members of the French luxury giant arranged to meet Tuesday to discuss the planned acquisition, WWD reported, citing unidentified individuals. Directors are concerned about the Covid-19 pandemic that has disrupted the U.S. economy and growing unrest over police violence, the fashion publication said. They also expressed worries over Tiffany’s ability to cover its debt covenants at the end of the transaction.Tiffany shares fell 8.9% to $117.03 Tuesday, the steepest intraday drop since 2015. LVMH, which has agreed to pay $135 a share for Tiffany, was little changed in Paris trading Wednesday.Tiffany’s representatives didn’t immediately respond to a request for comment from Bloomberg. An LVMH representative declined to comment.“I would imagine it is normal that LVMH internally discusses the proposed Tiffany acquisition — given the size of the deal, the Covid-19 situation and the recent social unrest in the U.S.,” wrote Luca Solca, an analyst at Sanford C. Bernstein. “Having said that, the Tiffany takeover would provide a unique strategic opportunity to LVMH, boosting its position in branded jewelry.”Solca said it’s an “open question” whether LVMH would try to renegotiate better terms. Tiffany has dropped 12% since the French company agreed to the purchase, the biggest in the luxury-goods industry, in November. The deal was supposed to close in the middle of this year.The economic fallout from the pandemic has disrupted or derailed a number of prominent deals, including L Brands Inc.’s agreement to sell a majority stake in Victoria’s Secret to private-equity firm Sycamore Partners. If the LVMH-Tiffany tie-up falls apart, it would be one of the largest so far related to Covid-19.The New York-based jeweler’s website says that as of June 1, its stores are temporarily closed until further notice. The pandemic has also affected the company’s ability to offer next-day and express shipping. The stores went dark in mid-March due to the pandemic shutdown. Some of its locations have had their windows boarded up as protests roil cities across the U.S.Virus EffectLVMH’s planned purchase of has been the subject of speculation after the coronavirus pandemic altered the consumer landscape across the globe.For the French company, the deal originally made strategic sense: Buying U.S.-based Tiffany would help the Louis Vuitton owner challenge Cartier parent Richemont for dominance in the global jewelry business. But as Americans curb discretionary spending and retail stores temporarily close their doors, growing exposure to the U.S. market doesn’t have quite the same appeal as it did when the tie-up was announced last November.Prior to the virus lockdown, the 183-year-old Tiffany was struggling with a lull in international tourist traffic and civil unrest in Hong Kong. In the U.S., management has worked to attract younger clients, though sales have been slow to rebound. Chief Executive Officer Alessandro Bogliolo made China a priority, counting on the market as a growth engine.(Updates with deal price in third paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
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