Tags: hertz | car | dollar-thrifty | merge

Hertz to Buy Car-Rental Rival Dollar Thrifty for $2.56 Billion

Monday, 27 August 2012 07:10 AM

Hertz Global Holdings agreed to buy rival Dollar Thrifty Automotive Group for about $2.56 billion in a deal that puts about 95 percent of the U.S. car rental market in the hands of three companies.

The merger ends more than two years of on-off takeover talks for Dollar Thrifty involving Hertz, the second-largest U.S. car rental company, and third-ranked Avis Group Inc.

With the long coveted acquisition of fourth-ranked Dollar Thrifty, Hertz would further cement its lead over Avis while narrowing the gap with market leader Enterprise Holdings, which owns Enterprise along with the Alamo and National brands.

Hertz shares jumped 11 percent to $14.65 at midday on the New York Stock Exchange iwhile Dollar Thrifty shares traded up 7 percent at $87.04, just below the offer price of $87.50.

In a sign that investors welcomed consolidation of the industry, Avis shares also rose 4 percent to $16.63.

The Hertz offer was at a premium of 8 percent to Dollar Thrifty's Friday closing price of $81 on the New York Stock Exchange and almost double a $1.2 billion offer Hertz made in April 2010.

Based on Dollar Thrifty's net cash position of $285 million, the deal has an enterprise value of $2.3 billion, the companies said.

Past takeover talks were stalled in part by price and in part by uncertainty over the companies' ability to win antitrust approval of a merger, but Hertz expressed confidence that it would win antitrust approval by mid-October, with a concrete plan to sell its discount brand Advantage.

On Monday, Park Ridge, New Jersey-based Hertz also said it has agreed to sell Advantage, which caters to the same market as Dollar Thrifty, to Franchise Services of North America and Macquarie Capital.

Underscoring the level of confidence by both companies that the deal will clinch regulatory blessing, neither break-up fees nor reverse break-up fees are payable if the transaction fails, people familiar with the matter said.

Hertz CEO Mark Frissora also said his firm had seen rising competition in the last 12 months.

"We are going to go from having 17-18 percent share of the total market to 24 percent. There is still 20-30 percent of the market that'll still be controlled by regional players," Frissora told Reuters, referring to the U.S. airport rental market share.

"We are pleased to have finally reached an agreement with Dollar Thrifty after a lengthy - but worthwhile - pursuit," he said earlier in a statement. "We have always believed that a combination with Dollar Thrifty is the best strategic option for both companies."

Hertz expects the transaction to be accretive to its diluted net earnings per share in the first year and generate at least $160 million of annual cost savings.


Dollar Thrifty is allowed to solicit a superior proposal for 30 days, according to the people familiar with the matter. But analysts played down the prospect of another round in the takeover wrangling.

Avis' entry into the bidding in 2010 pushed up the price for the perennial takeover target, which at one point during the financial crisis was offered $2 per share by Hertz.

Avis withdrew its offer after it bought Avis Europe last year for about $1 billion.

"We do not believe (Avis) will re-enter the process given the outstanding offer," MKM Partners analyst Christopher Agnew said in a note to clients.

Several top Dollar Thrifty shareholders told Reuters last week they would likely accept a takeover offer from Hertz that valued the company at more than $87 per share.

"Hertz has made a compelling offer to our stockholders that reflects the strength of our business," Dollar Thrifty Chief Executive Scott Thompson said in a statement.

However one top shareholder, who declined to be identified, on Monday said the purchase price was disappointing and the offer price should have been $90 per share or above.

Dollar Thrifty, the final big target in an industry that has consolidated rapidly, this month urged Hertz to make a compelling offer or leave it alone.

Frissora said there would be job cuts after the deal but he would work to limit redundancies.

Lazard, Barclays, Bank of America Merrill Lynch and Deutsche Bank are financial advisers to Hertz, while J.P. Morgan and Goldman Sachs are advising Dollar Thrifty.

Lazard Ltd, Barclays, Bank of America Merrill Lynch and Deutsche Bank are acting as financial advisors to Hertz.

Barclays will also serve as dealer manager for the cash tender offer and has committed to a $1.95 billion bridge financing facility to support the transaction, along with Bank of America and Deutsche Bank.

JPMorgan Chase & Co and Goldman Sachs Group advised Dollar Thrifty.

© 2020 Thomson/Reuters. All rights reserved.

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Monday, 27 August 2012 07:10 AM
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