BANGALORE Avis Budget's bid for Dollar Thrifty may have come at a discount but the company's willingness to divest a chunk of its business to get regulatory approval shows its determination to go the extra mile to snatch the smaller rival from Hertz, and promises higher offers.
On Wednesday, Avis Budget Group Inc CAR.N bettered Hertz Global Holdings Inc's (HTZ.N) offer for Dollar Thrifty Automotive Group DTG.N but the offer was at a discount to Dollar's market price.
In a regulatory filing late on Thursday, Avis said it was willing to divest up to $325 million worth of revenue or businesses to get antitrust approval for the buy. Avis clocked revenue of $5.13 billion in 2009.
Hertz, under its merger agreement with Dollar Thrifty, has agreed to divest its Advantage brand and up to $175 million worth of revenue-generating business lines or locations to get antitrust clearance.
Industry players had earlier raised concerns that both the deal attempts could draw lot of scrutiny from antitrust authorities as the consolidation in the rental car business has been rapid.
But Hertz is thought to have a clearer path to approval because it mostly focuses on more expensive segments of the car rental market. Avis already has a budget brand that competes with Dollar Thrifty.
Hertz and Avis have already begun the process of getting antitrust approval and have both received "second requests" from the regulator.
MKM Partners analyst Christopher Agnew said Hertz has a timing advantage with regard to regulatory approval as it apparently has engaged in detailed talks with the FTC.
In a statement, S&P said the review process will take some time and any deal would most likely not close until later this year.
Shares of Dollar Thrifty closed up 2 percent at $49.68 Thursday on the New York Stock Exchange. Avis shares closed up 7 percent, while Hertz closed up 2 percent.
Avis offered about $1.33 billion for Dollar Thrifty, topping Hertz's offer as the two rivals spar to pick up the budget brand. Still, its $46.50 a share bid fell about 4.5 percent short of Dollar Thrifty's Wednesday's closing price.
Wall Street does not believe this is the end of the buyout saga, with investors pushing Dollar Thrifty shares up on hopes that a bidding war that will likely result in a much higher offer.
Hertz, when it made the offer in April, bid $41 a share for Dollar Thrifty -- a 5.5 percent premium then. Dollar Thrifty's shares have risen about 25 percent since.
"While it is difficult to determine the ultimate outcome and takeout price, there is significant room for both companies to increase their respective bids, possibly several times," said MKM Partners analyst Christopher Agnew.
Analysts said Avis' first offer will not be its last, but they largely expect Hertz to top Avis' offer and walk away with Dollar Thrifty in the end.
A Hertz spokesman declined to comment on whether the company would raise its offer for Dollar Thrifty.
"We have begun reviewing their bid which we learned about late yesterday afternoon. We would not respond until Dollar Thrifty determines if Avis bid is superior," Hertz spokesman Richard Broome said in an emailed statement.
Avis has been prepping up financing to fund Dollar Thrifty buyout. It tapped Citi and Morgan Stanley to provide the fully committed financing that will back the cash portion of its bid for Dollar Thrifty, sources told Thomson Reuters LPC on Thursday.
Earlier this week, it also amended its JP Morgan-led credit facility.
(Reporting by A.Ananthalakshmi in Bangalore; Editing by Gopakumar Warrier, Unnikrishnan Nair)