After chasing a merger for more than two years, Hertz
finally landed Dollar Thrifty Automotive Group with an all-cash transaction
totaling $2.6 billion in equity value.
"At last, we're in the home stretch of closing on what
will be important brand additions to our rental car business," Hertz
chairman and CEO Mark Frissora declared at the opening of a conference call
with analysts and media this morning.
Frissora said the merger "results in a $10.2 billion
company with three distinct brands," with Hertz's continued emphasis on
the "premium" business and leisure segments, Dollar targeting
"value" business and leisure segments and Thrifty taking on what
Frissora called the "spartan leisure segment."
Last year, the four largest U.S. rental car companies—Avis
Budget, Dollar Thrifty, Enterprise and Hertz—accounted for nearly 97 percent of
the market at the top 50 U.S. airports, according to Abrams Consulting Group
data. With Dollar Thrifty holding about 12 percent of that share, Hertz's
acquisition places the vast majority of the U.S. market under the control of
three major companies.
Frissora last year noted that a Dollar Thrifty acquisition
would help Hertz better compete for corporate business, since Hertz's Advantage
brand, which now is in the process of being divested, "is too low-price to
be on the same rate card with Hertz with a corporate customer." The
addition of Dollar Thrifty "fills in the middle for us," he said at the time.
Dollar Thrifty chairman and CEO Scott Thompson during
today's conference call said, "I believe Hertz will be able to swell the
company's product offerings and expand geographically in ways that would be
difficult for Dollar Thrifty to do as a standalone company." As one
example of that expanded geographic reach, Hertz plans to place Advantage
locations in Europe under the Thrifty brand.
Hertz would pay $87.50 per share of Dollar Thrifty stock.
Frissora referenced the "long road getting to this point," and,
indeed, years have elapsed and stakes have changed since Hertz in April 2010
embarked on a deal to acquire Dollar Thrifty for $41 per share, or about $1.2
billion.
Since then, Hertz and competitor Avis Budget sparred in a months-long bidding war, which effectively ended when Avis signed a merger agreement with Avis Europe. Left as the lone suitor for Dollar Thrifty, Hertz
then became mired in a long antitrust-clearance process with the Federal Trade
Commission.
The companies plan to file today an official merger
agreement with the Securities and Exchange Commission and plan to close the
transaction in the fourth quarter. Getting there requires some unfinished
business with FTC, as Hertz must unload some assets to gain clearance.
"We've signed a purchase agreement for the divestiture of our Advantage
assets, as well as certain DTG assets and associated airport concessions,"
Frissora said, though the company did not disclose buyers.
Pending shareholder and regulatory approvals, the companies
expect to "start integration actions before year-end," said Frissora.
The boards of both companies have "unanimously" blessed the deal, and
MKM Partners analyst Chris Agnew expected the offer to be "well
received" by Dollar Thrifty shareholders.
Once combined, the companies expect to ramp up cost and
revenue synergies. While executives on Monday did not dig into the sales
potential of the combined brands, they envisioned at least $160 million
"total annual run-rate cost synergies" in fleet, procurement,
information technology, insurance and other areas. Agnew called those estimates
"conservative."