Wall Street Bets was right: Hertz’s bankruptcy auction will actually give shareholders a handsome payout – even after Wall Street decided the stock was worthless

• Retail traders from Wall Street Bets helped spur a nearly 825% spike in Hertz last summer after the company filed for bankruptcy.
• They bought the stock even when Hertz said its shares could be “worthless.”
• Now current shareholders will receive a rare payout in Hertz’s takeover bid, proving retail traders’ instincts on the stock were correct.
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Long before GameStop and Reddit’s WallStreetBets became synonymous, the social media platform was enamored with another stock: Hertz.

The rental car company was the target of Reddit-fueled traders last summer when it first announced it would file for bankruptcy. Shares of Hertz spiked as much as 825% in a matter of weeks, while Wall Street onlookers scratched their heads wondering why retail investors were scooping up shares of a company that couldn’t meet its debt obligations.

In June, retail investors who held the steadfast believe that “stonks only go up,” were especially excited that billionaire investor Carl Icahn missed out on Hertz’ massive rally. When the Hertz bankruptcy was first announced, Ichan sold his Hertz position at an average price of 72 cents, representing a loss of more than $1.8 billion.

“Good job guys. Hertz is now a viable company again. Carl Icahn is a clown who bought high, sold low,” a WallStreetBets user commented last summer.

Even Hertz itself didn’t have as much faith in its stock than the retail traders. When the rental car company issued more shares in June, it warned its stock could be potentially “worthless.”

“We are in the process of a reorganization under chapter 11 of title 11, or Chapter 11, of the United States Code, or Bankruptcy Code, which has caused and may continue to cause our common stock to decrease in value, or may render our common stock worthless. Investing in our common stock involves a high degree of risk,” the company said in an SEC filing.

Typically in a corporate bankruptcy case like Hertz’, equity shareholders would receive nothing. In March 2021, Hertz unveiled its reorganization plan which revealed that shareholders would receive no payout.

But on Wednesday, Hertz announced that it accepted a $6 billion bid from a group of investors including Knighthead Capital management, Certares Opportunities, and Apollo Capital Management to exit bankruptcy. The winning bid will pay current shareholders close to $8 a share.

As part of the Hertz proposal, institutional and accredited equity investors will be given around $240 million in cash and the chance to participate in either a $1.6 billion rights offering or warrants for about 20% of the reorganized company, according to Bloomberg.

Many of the traders who speculated on Reddit likely won’t qualify as institutional or accredited investors, and therefore won’t get new shares, but their instinct over the value of Hertz’ stock turned out to be correct, even when much of Wall Street didn’t believe so.

The $8 share price is higher than what any retail investor who purchased last summer paid.

Shares of Hertz extended their gains for a second day in a row, jumping as high as 11% to $6.36 on Thursday, following a nearly 70% surge on Wednesday.