May 25 Car rental company Hertz Global Holdings
Inc is nearing its long-cherished goal of buying out
rival Dollar Thrifty, after doggedly pursuing its quarry
through a bidding war with rival Avis Budget for several
A friendly deal could be announced anytime now, according to
Hertz said earlier this month that it was close to getting
antitrust approval - seen as the biggest hurdle to a transaction
- having identified a buyer for the assets it needs to divest.
"We believe that Hertz will be motivated to follow through
and negotiate a transaction," said Roy Behren, co-chief
investment officer at Westchester Capital Management - Dollar
Thrifty Automotive Group Inc's second-biggest shareholder.
He said Hertz's offer would likely be in the high 80s to low
90s range. At $85 per share, the deal would value Dollar Thrifty
at $2.38 billion.
Dollar Thrifty is seen as the last big prize in an industry
that has consolidated in recent years. But antitrust concerns
have clouded the battle for its takeover as it would leave just
three players dominating more than 90 percent of the U.S. car
The market leader is privately held Enterprise Holdings.
"This story has been there for a real long time and it is
starting to suffer from deal fatigue," said Craig Effron,
managing partner at Scoggin Capital Management. Scoggin holds
shares of Hertz and Dollar Thrifty.
"Both the parties know what the deal price is going to be at
this point. They are just waiting for the FTC to make their
decision," he said.
Hertz has worked with the U.S. Federal Trade Commission
(FTC) to get antitrust approval for almost a year. It has agreed
to divest its budget brand Advantage, which caters to the same
market as Dollar Thrifty.
Analysts and shareholders consider U-Save Car & Truck
Rental, owned by Franchise Services of North America Inc
, as a potential buyer for Hertz's budget brand
HOW HIGH CAN THE PRICE GO?
Hertz and Avis have made several offers for Dollar Thrifty
in the last five years. At one point during the financial
crisis, Hertz offered to buy the smaller rival for $2 per share.
When Dollar Thrifty halted the sale process in October 2011,
Hertz's offer was valued at $66.21 per share.
Dollar Thrifty's stock has since gone up about 30 percent.
It was trading at $76.76 on Friday.
"We and most other shareholders will not agree to any
transaction that has a 7 in front of it. Low 80s would not do
the trick either," Westchester Capital's Behren said.
Another Dollar Thrifty shareholder, who did not want to be
named, said he would happy with mid-80s. And though Hertz could
pay as much as $90 per share, but it did not need to.
An $85 per share offer would only be slightly above the
stock's year-high of $84.24.
Fred Lowrance, an analyst with Avondale Partners, said Hertz
will not go above $90 per share unless it absolutely has to. But
given Dollar Thrifty's earnings potential, a $95 per share deal
would still make sense for Hertz, he said.
Dollar Thrifty's net income was $159.6 million in 2011 on
revenue of $1.55 billion. Hertz recorded revenue of $8.3 billion
in the same year.
Hertz has to make a move fast. If it delays the offer till
next year, Avis could come back into the race, said Avondale
Hertz buying Dollar Thrifty will widen the gap between Avis
and Hertz. Avis recorded revenue of $5.9 billion in 2011.
Many have ruled Avis out since it announced plans to buy its
European arm for about $1 billion. It pulled out of the Dollar
Thrifty race citing tough debt market conditions.
"I wouldn't totally count Avis out. They would be very much
behind the (antitrust) process. To catch up, they need to do
that in the price that they propose," said the Dollar Thrifty
shareholder who did not want to be named.
Many Dollar Thrifty shareholders are now arbitrage funds -
those who specialize in investing in companies that could get
acquired. They could pull out if a deal is not done.
If a deal does not happen, the stock will settle in the 60s,
Avondale's Lowrance said.