(Repeats to wider audience. No changes to text)
* Hertz/Avis offer will undergo tough scrutiny
* Easier for Hertz to get approval
* Shareholder conflicts remain
BANGALORE, May 4 Avis Budget fired its first
salvo in what could turn out to be a protracted takeout saga
for Dollar Thrifty, as the dwindling number of players in the
car rental market is likely to draw scrutiny from antitrust
Avis Budget CAR.N surprised investors on Monday when it
said it was willing to make a "substantially higher" bid for
Dollar Thrifty DTG.N, which had already agreed to a $1.2
billion buyout offer from Hertz Global (HTZ.N). [ID:nSGE6420H6]
But neither Avis nor Hertz is going to have an easy time
persuading regulators to allow them to take over the No. 4 car
rental company in the United States.
"I would imagine that either deal would get a lot of
scrutiny as the consolidation in the rental car business has
been rapid and large," said John Briggs, an antitrust expert
with the law firm Axinn, Veltrop & Harkrider LLP.
"In the end, it seems like three major companies may be all
that remain and this is enough to trigger pretty strong
scrutiny," Briggs said.
Avis, Hertz and Dollar Thrifty, along with market leader
Enterprise, control about 96 percent of the U.S. car rental
market and operate eight brands among them -- Enterprise has
three, while Avis and Dollar Thrifty each have two.
For a related Breakingviews column, click on [ID:nLDE6431RC]
For a graphic on current market share, click
Hertz is the only player with just one brand, focused on
business travellers. With the addition of Dollar Thrifty, which
caters to the value market, it would have three.
Avis, if it decides to make an offer, would have four
brands, and the biggest share in the budget rental market.
Analysts consider it unlikely that Enterprise, which has 53
percent of the overall market and has three brands, would make
an offer for Dollar Thrifty.
"This will be a long process either way because the
regulatory process would take nine to 12 months," said MKM
Partners analyst Christopher Agnew
Antitrust expert Briggs said antitrust clearance might come
down to whether Dollar Thrifty is viable on its own and what
its alternatives are.
Dollar Thrifty reported strong first-quarter results two
days after the Hertz announcement, suggesting it could do well
as a stand-alone company and had no need to be taken over.
The company has said it never put itself up for sale and
the Hertz offer was unsolicited.
HERTZ HAS THE UPPER HAND
In a letter to Dollar Thrifty shareholders, Avis said the
antitrust analysis and clearance timetable for an Avis-Dollar
Thrifty deal would be comparable to those associated with a
Hertz-Dollar Thrifty transaction.
But industry experts don't agree.
"Sounds as if Avis is looking to prevent Hertz from gaining
a foothold in the same space occupied by Budget, which is owned
by Avis," said Briggs, adding that it would have a harder time
than Hertz getting clearance for that reason.
Peter Zuger, manager of Touchstone Mid Cap Value Fund, said
Hertz would find it easier than Avis to win regulatory
According to its merger agreement with Dollar Thrifty,
Hertz agreed to divest its Advantage brand and up to $175
million worth of revenue-generating business lines or locations
to get antitrust clearance.
Hertz bought Advantage, with annual revenue of $146
million, out of bankruptcy in 2009.
Analysts said Hertz is the best fit for Dollar Thrifty,
offering $180 million or more of synergies that would be
unlikely to to come out of a deal with either of the other two
"They both bring something to each other and therefore I
think it is a deal that makes a lot of sense," said Neil Abrams
of car rental consultancy Abrams Consulting Group. "Their
business models are complementary."
"This was really the only major deal left," Abrams said.
Avis and Enterprise already have a considerable presence in
the leisure market that Hertz is targeting with the Dollar
In fact, Avis Budget's indication of its desire to bid for
Dollar Thrifty surprised several analysts who had ruled out
bids from Avis and Enterprise due to regulatory issues.
The likelihood of a private equity bid is low, though these
firms have shown interest in the industry in the past.
In 2005, an investor team comprising of Carlyle Group
[CYL.UL], Clayton, Dubilier & Rice and Merrill Lynch Global
Private Equity acquired Hertz from Ford (F.N) for about $15
billion including debt.
SHAREHOLDER APPROVAL ANOTHER ISSUE
Despite Avis Budget's promise of a higher offer, a big
shareholder overlap between Hertz and Dollar Thrifty might make
it easier for their deal to get shareholder approval even if
Dollar Thrifty investors think the offer price is low.
Several of the large shareholders in each company own
stakes in the other, including T. Rowe Price Associates,
Vanguard Group, BlackRock Institutional Trust Co and Fidelity
Management & Research.
(Additional reporting by Diane Bartz in Washington and Fareha
Khan in Bangalore; Editing by Saumyadeb Chakrabarty and Mike
Miller) ((firstname.lastname@example.org; within U.S. +1
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