As Hertz and Avis Budget vie to acquire Dollar Thrifty Automotive Group, analysts said buyers should see little pricing impact despite the outcome and might garner wider pricing options when negotiating car rental agreements.
Hertz in late April signed a definitive agreement to acquire Dollar Thrifty for $41 per share, or about $1.2 billion.
Hertz chairman and CEO Mark Frissora said the acquisition "fills a gap in our product portfolio, with a strong mid-tier option. Together, we'll be able to compete even more effectively, offering a wide range of rental options."
The next week, Avis Budget Group announced intentions to outbid Hertz, issuing a letter to Dollar Thrifty's chairman and CEO decrying the terms of the proposed Hertz deal. In the letter, Avis Budget chairman and CEO Ronald Nelson said Avis wanted to make "a substantially higher offer." Nelson said he and Dollar Thrifty president and CEO Scott Thompson previously scheduled a meeting to discuss a potential transaction, set for two days after the Hertz deal was announced.
"We at Avis Budget have on several occasions in the past expressed interest in entering into a transaction with Dollar Thrifty, yet at no stage in the last several months did you or your financial advisor engage us in any discussions about a transaction or offer to provide us with information so that we might submit a bid," Nelson said in the letter. "It is hard to understand how your failure to engage in discussions with an interested strategic buyer, who you know also would be able to achieve significant synergies as a result of a combination, can be consistent with the fiduciary duties that you and your board carry to seek the best possible deal for you shareholders."
Dollar Thrifty later said it would be willing to entertain an offer from Avis Budget, and Avis Budget began reviewing financial data to consider an offer.
Regardless of the outcome, an acquisition would reduce the major U.S. car rental landscape to three companies: Hertz, Avis Budget and Enterprise, which owns the National and Alamo brands. Even so, analysts said neither deal would affect corporate rates.
"Most corporate agreements are with the big three: Hertz, Avis or National," said Bob Brindley, vice president of BCD Travel consulting division Advito. "Hertz and Avis are looking at bolstering the leisure segment and adding operational efficiencies, but from a pure corporate perspective, I don't see it as being a big impact."
Car rental consultant Neil Abrams of Abrams Consulting Group said Hertz and Dollar Thrifty make a complementary pair. Hertz has a strong corporate midweek business, while Dollar Thrifty is stronger for weekend leisure business. Additionally, Dollar Thrifty would benefit from Hertz's investment in off-airport business, he said.
Frissora said the deal would boost Hertz's global network to almost 10,000 locations across six continents, and Abrams said Hertz further benefits for being the only major company to fully control its brand worldwide. Combined, Hertz and Dollar Thrifty have about $180 million in synergies between fleet, IT and procurement, according to Frissora.
A Hertz/Dollar Thrifty deal might give travel buyers opportunities when negotiating with Hertz, Abrams said. "Depending on what they decide to do with the brand, they could do what Avis did with Budget, providing a lower-priced corporate brand with less bells and whistles but still providing services a corporate buyer needs," he said. "The potential to have that lower-priced corporate offering is very compelling."
Hertz last year bought Advantage Rent A Car for $33 million
(BTNonline, April 10, 2009). It since invested to grow the brand in a price tier below Dollar Thrifty.
While synergies with Avis Budget also are possible, Abrams said the Dollar Thrifty brands would be somewhat redundant with Budget. The deal also might have more trouble clearing antitrust regulatory hurdles as it would create slightly larger marketshare control than a Hertz/Dollar Thrifty deal, Abrams said. Nelson wrote Avis Budget is "confident that the antitrust analysis and clearance timetable for an Avis/Dollar Thrifty transaction are comparable to those associated with a Hertz/Dollar Thrifty transaction."