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Avis' European buy a boost for Hertz in Dollar Thrifty
June 14, 2011 / 9:27 AM / 6 years ago

Avis' European buy a boost for Hertz in Dollar Thrifty

<p>Cars are seen at car rental company Avis at Heathrow Airport, in west London in this November 17, 2008 file photo. REUTERS/Luke MacGregor</p>

BANGALORE/LONDON (Reuters) - Avis Budget’s (CAR.O) move to buy its European counterpart for 635 million pounds ($1 billion) makes it less likely the car rental firm will renew its bidding for U.S. rival Dollar Thrifty Automotive Group DTG.N.

Amid growing consolidation pressure in the industry, Avis and rival Hertz (HTZ.N) have been chasing Dollar Thrifty for more than a year and are in separate talks for antitrust approval. Hertz shares jumped 10 percent early on Tuesday.

“This is Avis sort of stepping aside on the Dollar Thrifty front for now,” said Avondale Partners analyst Fred Lowrance. “For the time being, I look at this as just Hertz trying to acquire Dollar Thrifty and that’s it.”

Dollar Thrifty shares fell 9 percent to $72.50 in New York, while Avis rose about 5 percent after the company said it would focus on the European buy for now.

“While Avis Budget will continue to monitor the Dollar Thrifty situation, the company’s focus squarely will be on completing and integrating the significant acquisition of Avis Europe,” Avis said in a statement.

Avis’ buy of its European namesake reunites the two businesses a quarter of a century after the European division was spun-off.

Consolidation in the U.S. car rental market has been rapid, leaving just four major names -- Hertz, Avis, Dollar Thrifty, and privately-owned Enterprise Rent a Car -- and raising antitrust concerns.

The battle for Dollar Thrifty intensified last month when Hertz came back with a significantly higher bid.

Avis’ chances of getting antitrust approval for a Dollar Thrifty buy appear slim as it already has a budget brand that competes with Dollar Thrifty.

However, it does not anticipate any “significant antitrust obstacles” for its Avis Europe acquisition.

Including the European business, Avis Budget will be the largest publicly traded car rental business in the world, Chief Executive Ronald Nelson said on a call with analysts.

The U.S. business, which has lagged its European counterpart’s expansion in emerging markets, stands to gain access to fast-growing Indian and Chinese operations.

Nelson said the deal was about expanding into high-growth emerging markets, adding Avis Europe was well positioned to take advantage of a rebound in travel demand.

COST SAVINGS

Avis Budget said it would pay 315 pence per share in cash for London-listed Avis Europe AVE.L, a 60 percent premium to the stock’s Monday close.

The tie-up will create a group with annual sales of $7 billion in more than 150 countries, while saving $30 million a year in costs, the company said.

The takeover, backed by Avis Europe’s 60 percent shareholder, Belgian car dealership D‘Ieteren (IETB.BR), would reverse a spin-off of Avis’s European arm in 1986.

Avis Budget said it planned to finance the deal, expected to close in October, through a combination of cash, debt and the proceeds of a potential $250 million share sale.

Avis Europe Chief Executive Pascal Bazin told Reuters it was too early to estimate the impact of the tie-up on his company’s 6,000 strong workforce.

Avis Europe shares soared 58 percent to 310.7 pence in London, while Euronext-listed D‘Ieteren shares were up 12.22 percent at 50.05 euros. D‘Ieteren has held a stake in Avis Europe since 1989 and stands to get 367 million pounds from the sale.

Barclays Capital advised Avis Europe, while Morgan Stanley and Citi advised Avis Budget.

Additional reporting by Purwa Naveen Raman in Bangalore; Editing by Andrew Callus and Roshni Menon

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