HFS Said To Be Gearing Up For Alamo Purchase

<FONT SIZE="+3"><B>HFS Said To Be Gearing Up For Alamo Purchase</B>

By Lynn Woods

In mid-October, press reports about meetings between executives from Alamo Rent A Car and HFS Inc. chairman Henry Silverman fueled speculations that HFS' acquisition of the car rental company was imminent.

HFS, the nation's largest franchiser of hotels and residential real estate brokerages, just completed its purchase of Avis Inc. for $800 million and has said it is looking to acquire another car rental company. Analysts said the choice of Alamo was logical because its focus on the leisure market would nicely complement Avis' strong corporate business.

According to a report in <I>The Miami Herald</I>, executives had discussed a price for Alamo ranging between $400 and $600 million. Neil Abrams, president of Neil Abrams Associates in Purchase, N.Y., a car rental consultancy, said "the high $400 millions is probably in the ballpark."

Neither HFS nor Alamo spokespeople would confirm the talks or the possible acquisition.

All of Alamo's 185 locations are corporate-owned. In acquiring the car rental firm, HFS, which makes money through franchising its well-established hotel and real estate brand names, could be planning to expand Alamo by selling the brand-name to franchisees, Abrams suggested. "HFS is a company that creates possibilities," he said.

Most likely, the firm would "look at the synergies between the markets, customer bases and fleet requirements of Alamo and Avis and build profit centers and collateral revenue streams out of the joint ownership and management of the two brands," he said.

Jon LeSage, executive editor of <I>Auto Rental News </I>in Redondo Beach, Calif., said that with the combined fleets of the two companies amounting to 200,000 or more cars, the majority acquired from General Motors, HFS would benefit from an advantageous fleet deal. In addition, "you'd see Avis' WizCom system integrated into Alamo and maybe the merging of some other back-room operations," he said.

HFS could get more mileage out of its cars by using what LeSage called "the cascading strategy": Brand-new cars would be used in Avis' corporate fleet, then moved into Alamo's leisure markets once they had accumulated significant mileage levels, and finally shifted into Avis' replacement business.

However, since it's still too early to say what the changes resulting from HFS' purchase of Avis will be, let alone confirm the Alamo deal, experts said the ways in which HFS would develop its car rental properties is still very much an unknown.

Naysayers of the whole-branding strategy point to the failure, in the late 1980s, of Allegis, the former parent company of United Airlines, which briefly acquired Westin, Hertz and Hilton International-a partnership that "didn't work too well," pointed out LeSage.

On the positive side, LeSage and Abrams pointed to the tremendous success of HFS, which owns nine hotel companies, three national real estate firms and just signed an agreement to purchase Resort Condominiums International, a provider of leisure timeshare exchanges.

Also in HFS' favor is the healthy travel market, LeSage said. "Travel by small and medium-sized businesses is growing, and the leisure market is growing," he said. With its acquisitions in both the lodging and transportation sectors, he said, HFS "is well positioned to take advantage of market share growth for the travel market overall.