Ever wonder why there are so many upbeat analyst reports out there? Consider the following press release from car rental company Hertz on Monday (emphasis FT Alphaville’s):
Hertz today announced that it has filed a lawsuit in the Superior Court of New Jersey, Bergen County, against Audit Integrity and its Chief Executive Officer, Jack Zwingli. Hertz alleges in the lawsuit that Audit Integrity and Mr. Zwingli have defamed Hertz through a report published by Audit Integrity and public statements made by Mr. Zwingli. Hertz is seeking injunctive relief and monetary damages through its complaint.
Mark P. Frissora, Hertz Chairman and Chief Executive Officer, commented, “Our lawsuit is an appropriate response to the publication of false and harmful information about Hertz. Not only are the conclusions about our financial health baseless, but questioning the integrity of our financial reporting is indefensible. We are taking action and responding with the truth because we know that, by not responding, we shouldn’t be surprised if the public believes and acts on misinformation and untruths.”
The “false and harmful information” cited in the press release refers to a report released by Audit Integrity in September, in which the research firm listed 20 companies – Hertz among them - “likely to go bankrupt or suffer severe financial distress.”
But the Hertz attorneys didn’t just file suit against the research firm; they sent a letter to Audit Integrity’s chief executive accusing the firm of reaching “incomplete and misleading conclusions” – and CCd the missive to the legal departments of the 19 other companies mentioned in the report.
According to the letter, dated September 22 2009 and bearing the signature of Hertz general counsel Jeffrey Zimmerman: These types of conclusions should not be promoted lightly in a macro environment like the one impacting all of us today. As has happened here, the media is all too eager to republish this disinformation, which harms successful businesses and misleads the investing public.”
The suit seeks undetermined financial damages, a retraction, an apology, a court injunction barring Audit Integrity from making “further defamatory statements,” along with attorney fees and costs.
Audit Integrity, for its part, said in a statement it intends to “vigorously” contest this “unwarranted litigation”:
We are disappointed that Hertz has taken this action in an attempt to stifle an opinion they do not agree with. We firmly stand behind our methodology and findings, and will vigorously defend ourselves against this unwarranted litigation.
In its defense, the research firm also cited reports and statements filed by Hertz with the SEC, like the company’s 10-K for fiscal year 2008, page 50 of which includes the following boilerplate:
If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets, seek to obtain additional equity capital or restructure our indebtedness. In the future, our cash flows and capital resources may not be sufficient for payments of interest on and principal of our debt, and such alternative measures may not be successful and may not permit us to meet scheduled debt service obligations.
Hertz, meanwhile, pointed to the credit rating bestowed by Moody’s on the company’s latest $2bn debt issue in its counter-argument:
Moody’s credit rating of Aa1 for these notes is squarely at odds with your predictions that we represent a bankruptcy risk