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Following Dollar Thrifty Automotive Group shareholders'
Sept. 30 rejection of Hertz's acquisition offer, Avis Budget Group is pushing
ahead in is efforts to buy the company as Hertz turns its attention to its
low-cost Advantage Rent-a-Car brand.
Dollar Thrifty shareholders defied their board's
recommendations by rejecting Hertz's proposal by a margin of about 13.8 million
shares to 11.8 million shares, according to reports. The day before the vote,
Hertz issued a warning that a rejection would spell the end of its courtship of
Dollar Thrifty, and the company stood by that promise following the vote. Hertz
chairman and CEO Mark Frissora said in a statement that the company already had
begun taking steps to cease acquisition activities.
"Subject to final confirmation of the results of the
stockholder meeting, we will focus on implementing our strategy to rapidly
accelerate the expansion of Advantage Rent-a-Car and the U.S. off-airport
business," Frissora said. "This strategy builds on several straight
quarters of faster revenue growth in the U.S. airport rental market compared
with our publicly traded competitors."
Avis Budget has been locked in a bidding war ever since
Hertz first announced a deal with Dollar Thrifty in April. Hertz's final offer
stood at $50.25 per share, or about $1.46 billion, which Avis Budget had topped
at about $53 per share. On the eve of the vote, Avis Budget also agreed to
include a $20 million breakup fee, which would protect Dollar Thrifty should
the deal fail to get antitrust approval. Hertz's deal included a $44.6 million
In a statement issued after the vote, Avis Budget said it
was prepared to sign a merger agreement with Dollar Thrifty and that it would
continue to pursue antitrust clearance for the deal. Dollar Thrifty president
and CEO Scott Thompson, meanwhile, in a statement said the company would "evaluate
all of our options going forward."
Though Avis Budget has said antitrust clearance would be
equally difficult for either it or Hertz, analysts—and Dollar Thrifty's
board—had said the Hertz deal would face a less difficult battle for antitrust
clearance, since Avis already has a large, established brand in the same
pricing tier as Dollar Thrifty.
"It was surprising to me," car rental consultant
Neil Abrams, president of Abrams Consulting Group, said of the rejection. "Even
though the Avis deal had a premium of about $2.50 a share, I thought the deal
certainty associated with the Hertz offer offset the somewhat higher price."
As part of its bid for clearance, Hertz planned to divest
Advantage, which it acquired in 2008. Avis Budget, meanwhile, has agreed with
the U.S. Federal Trade Commission to shed $350 million in revenue, $250 million
of which would be domestic, Abrams said. Unlike Hertz's plans, that will not be
as simple as merely shedding a brand, he said.
"We'll have to see how that affects each of the brands,"
Abrams said. "It's difficult. Do they franchise some of their operations?
Presuming that it is approved at some point, this is the challenge for them to
Today, Budget, Dollar and Thrifty together comprise about 60
percent of the value car rental market. "That is a significant regulatory
hurdle," Abrams said.
Hertz, meanwhile, seems poised to beef up the asset it
previously planned to divest. While Advantage currently has a limited
geographic footprint, Hertz can use its expansion to tap into the value car
rental segment—which Avis has with Budget and National has with Alamo—that it
had intended to reach with Dollar Thrifty, Abrams said.
"Their objective definitely will be to as quickly as
possible be a national contender in that value segment," he said.
Should a Dollar Thrifty/Avis Budget deal ultimately go
through, it would have price implications for corporate buyers, said Dave
Kilduff, senior director of ground transportation consulting for Carlson
Wagonlit Travel's Solutions Group. While it certainly will not impact current
negotiations, industry consolidation drives up leisure pricing, which raises
costs for companies that do not negotiate car rental contracts, which in turn
can drive up future corporate rates, he said.
"The reason for anyone to buy them is to control that
pricing," Kilduff said. "Dollar and Thrifty aren't going to go
away—they'd run them as a separate brand name—but they'll consolidate fleet,
sales and cut costs where they can."
Any impact is a good ways down the road, however. At this
point, Dollar Thrifty's board would have to approve Avis Budget's proposal,
followed by another vote by shareholders. That, combined with regulatory
approval, would take several months and is unlikely to be completed by
year-end, Abrams said.
There's even the remote chance that Hertz could come back
with a counteroffer, he said.
"You would presume that Hertz is totally out of the
picture," Abrams said, "but I've seen wacky things happen, and this
has been wacky for the past four to six months."
This report appeared in the Oct. 11, 2010, edition of Business Travel