Bloomberg News

Avis Drops Dollar Thrifty Bid, Leaving Hertz to Close Deal

September 14, 2011

(Updates shares starting in first paragraph.)

Sept. 14 (Bloomberg) -- Avis Budget Group Inc., the U.S. auto-rental chain, said it will abandon its $1.56 billion bid to acquire Dollar Thrifty Automotive Group Inc., leaving Hertz Global Holdings Inc. as the lone remaining suitor.

“We have decided not to pursue a transaction at this time in light of current market conditions,” Parsippany, New Jersey- based Avis said today in a regulatory filing. Avis also is trying to raise money in the debt markets to finance its acquisition of Avis Europe Plc for 636 million pounds ($1 billion).

Feedback from potential debt investors on the difficulty of funding two large acquisitions may have caused Avis to drop its larger bid, said Bill Kavaler, an analyst at Oscar Gruss & Son Inc. The decision may increase the chances Dollar Thrifty, after resisting advances for 15 months, will reopen talks with Hertz about its bid, worth $1.95 billion.

“Avis was in there not as a spoiler but as support to make sure that Hertz didn’t try to get Dollar Thrifty too cheaply,” Kavaler said. Hertz buying Dollar Thrifty “is not in the bag. They still need to negotiate with the Dollar Thrifty board.”

Avis rose 74 cents, or 6.3 percent, to $12.48 at 4 p.m. in Nasdaq Stock Market trading. Tulsa, Oklahoma-based Dollar Thrifty rose 34 cents to $65.04 in New York Stock Exchange composite trading, while Hertz gained $1.35, or 13 percent, to $11.37, for the biggest gain since April.

Biggest Players

Dollar Thrifty is the fourth-largest U.S. rental-car chain and the last publicly available one. It trails Enterprise Holdings Inc., Hertz and Avis. Combined, the top four chains account for 83 percent of U.S. car-rental revenue, according to IBISWorld, a Santa Monica, California-based researcher.

Closely held Enterprise had a 40 percent share, followed by Hertz with 20 percent and Avis with 17 percent. Dollar Thrifty accounted for 5.6 percent of the industry’s sales, according to IBISWorld.

Scott Thompson, Dollar Thrifty’s chief executive officer since October 2008, has been cutting costs, helping the company boost profit the past two years after losing money in 2008.

The formal bidding started in April 2010, when Hertz, betting on a rebound in U.S. travel, offered to acquire Dollar Thrifty for a price then valued at $41 a share. U.S. travel was down 19 percent last year from its 2007 peak, Dollar Thrifty said in a regulatory filing last month.

The U.S. car rental and leasing industry shrunk an average of 2.5 percent a year from 2006 to 2011 as the recession slowed corporate and leisure travel, according to IBISWorld, which projects 2 percent annual growth from now to 2016.

Regulatory ‘Progress’

Avis said in today’s filing that it was dropping its bid even though it made “significant progress” in efforts to get U.S. regulatory approval for the acquisition and that “clearance could be obtained.” Andrew Siegel, a spokesman for Avis, declined to comment further on specific market problems.

Avis’s decision “changes nothing” for Hertz, Richard Broome, a spokesman, said in a phone interview. Park Ridge, New Jersey-based Hertz is still seeking FTC approval and divesting its Advantage brand that overlaps with Dollar Thrifty, he said.

Dollar Thrifty told Avis and Hertz in letters dated Sept. 6 that it wanted final offers by Oct. 10. Dollar Thrifty shareholders rejected Hertz’s offer in September 2010. Hertz, after calling that bid “final,” renewed its pursuit in May with an offer valued at $1.92 billion as of yesterday’s close. Dollar Thrifty recommended on June 6 that investors not accept Hertz’s bid because it undervalues the company.

‘Circus’ Environment

“We are pleased Avis disclosed that the FTC process has gone well, and that may give them optionality in the future,” Dollar Thrifty’s Thompson said today in an e-mailed statement. “In this circus you just never know what the future will bring.”

Avis yesterday set the initial rate on $420 million of debt it’s seeking to finance its acquisition of Avis Europe, according to a person with knowledge of the transaction. The person declined to be identified because the terms are private.

Avis originally had $900 million financing consisting of a $400 million term loan B, a $200 million term A piece and a $300 million revolving line of credit, according to data compiled by Bloomberg.

Hertz was going to be in a better position to acquire Dollar Thrifty because of the Avis Europe deal, Fred Lowrance, an analyst with Avondale Partners LLC in Nashville, Tennessee, said today in a phone interview.

“I’m sure Avis’s bankers are saying ‘look, we have to at least consider the possibility that we’re going into recession,’” Lowrance said. “After you take on the leverage from doing Avis Europe, you come up with some leverage ratios that are too close for comfort to the covenants in Avis’s credit agreements.”

It’s “highly likely” that Hertz will complete a deal for Dollar Thrifty, he said. York Capital Management, the New York- based hedge fund that is Dollar Thrifty’s largest shareholder, also owns the fourth-largest stake in Hertz, according to Bloomberg data.

--With assistance from Michael Amato in New York. Editors: Jamie Butters, John Lear

To contact the reporters on this story: Mark Clothier in Southfield, Michigan at mclothier@bloomberg.net; Craig Trudell in Southfield, Michigan at ctrudell1@bloomberg.net

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net


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