Hertz Global (HTZ) announced plans on Tuesday to spin off its equipment rental business in a $2.5 billion transaction that paves the way to pay down debt and ramp up share buybacks.

The car rental company had been under pressure for years from analysts and shareholders to  shed Hertz Equipment Rental Corporation in an effort to boost free cash flow.

Hertz said it plans to spin off HERC in a tax-free transaction early next year, leaving the  remaining publicly traded company as the owner of the namesake car rental business as well as rental brands Dollar Thrifty and Firefly and fleet leasing firm Donlen.

HERC generated annual revenue of $1.5 billion in 2013, making it one of the largest equipment rental businesses in the world.

“Our rental car and equipment rental businesses are leaders in their respective markets with valuable assets and tremendous long-term potential. Through unbundling these undervalued assets, we unleash current and future shareholder value,” Hertz CEO Mark Fissora said in a statement.

A person familiar with the matter said the spinoff was not announced as a result of recent speculation about the presence of activist investors in Hertz stock. In fact, the person said Hertz filed for a private letter ruling on the tax efficient nature of the deal from the Internal Revenue Service in August 2013, months ahead of reports that Carl Icahn had taken a stake in the company.

Last month, Icahn told FOX Business he does not hold a major position in Hertz and the company is not his next proxy target.

Instead, the person said the timing was fueled by the strong capital markets that can support the deal and the diverging cash flow profiles of HERC and the parent company.

“There have been questions about whether it makes sense to have the equipment rental and car rental businesses together given that they fundamentally serve different end-markets and have different capital intensity levels,” the person said.

Hertz said it expects to receive net cash proceeds from a HERC spinoff of about $2.5 billion, which the company plans to use to pay down debt and support a newly-unveiled $1 billion share buyback program.

The majority of the new buybacks are likely to be made after the spinoff and could reach 20% of the company’s outstanding stock. Hertz said this replaces a $300 million repurchase program announced last year.

At the same time, Hertz said it expects to maintain net corporate leverage ratios of between 2.5x and 3.5x net debt/Ebitda, potentially freeing management up to “opportunistically” return more cash to shareholders.

Shares of Park Ridge, N.J.-based Hertz fell 1.51% to $26.82 Tuesday morning.

Hertz was advised by Bank of America Merrill Lynch (BAC) and Barclays (BCS).

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