UPDATE 3-Avis Budget says may bid higher for Dollar Thrifty

* Says interested in making substantially higher offer

* Says confident about antitrust timetable

* Dollar Thrifty shares rise 15 percent. (Adds details, analyst comments, updates share movement)

BANGALORE, May 3 (Reuters) - Car rental company Avis Budget Group Inc CAR.N said it was interested in making a "substantially higher" offer than Hertz Global's HTZ.N $1.2 billion bid to acquire Dollar Thrifty DTG.N, setting the stage for a potential bidding war.

Shares of Dollar Thrifty, which have been trading above Hertz’s April 26 offer of $41 a share, jumped 15 percent to $50.41 in afternoon trade on the New York Stock Exchange.

In a letter to the board of Dollar Thrifty, Avis Budget Chief Executive Ronald Nelson said, “We would like to make a substantially higher offer to acquire Dollar Thrifty, especially in light of your recent performance and the potential synergies.”

Avis Budget said Citigroup is acting as financial adviser and Kirkland & Ellis LLP is acting as legal counsel to the company.

The company, however, did not make any offer on Monday and was not immediately available for further comment. Dollar Thrifty was also was not available for comment.

In the letter, Nelson said Hertz offered “virtually no premium” to Dollar Thrifty’s shareholders, and added that Hertz was funding only about $34 a share in the deal.

Under the agreement, Dollar Thrifty will pay its shareholders a special cash dividend of $6.88 per share before the closing of the deal.

Hertz’s bid represented a premium of 5.5 percent to Dollar Thrifty’s closing price before the offer. With Monday’s share price gain, the market values Dollar Thrifty at $1.43 billion.

CEO Nelson also said the terms of the Hertz-Dollar merger agreement had an “unusually high break-up fee” to deter competing bids.

Upon termination of the merger agreement, either Dollar or Hertz might be required to pay the other party a termination fee of about $50 million, a regulatory filing by Dollar Thrifty on April 29 showed. This is nearly 5 percent of the total deal value.

“From a legal and regulatory standpoint, Hertz-Dollar Thrifty transaction was about to take as much 6 to 12 months,” Neil Abrams of Abrams Consulting Group said.

“They were hoping to close it by the end of the year. What this (Avis’ bid) can potentially do is delay the due processing of the Hertz-Dollar deal.”


If Hertz completes the deal, it will become the second-biggest U.S. car rental company, replacing Avis Budget. [ID:nSGE63P03V]

Privately held Enterprise Rent-A-Car dominates the market with a share of 53 percent.

The takeover overtures flag the beginning of a consolidation in the car rental industry, which is starting to recover from a downturn in the economy and the automobile industry in particular.

Avis Budget, which was set up in 1946 in Detroit as the first car rental operation located at an airport, has a considerable presence in the leisure market that Hertz is targeting with the Dollar Thrifty acquisition.

At the time it announced the deal, Hertz said the agreement required it to divest certain units if the U.S. Federal Trade Commission determined that the deal would produce an unacceptable concentration in the market.

In his letter to the Dollar Thrifty board, Avis Budget CEO Nelson said, “We are confident that the antitrust analysis and clearance timetable for an Avis/Dollar Thrifty transaction are comparable to those associated with a Hertz/Dollar Thrifty transaction.”

Analyst Abrams said, “Avis is high-end-travel oriented, and Budget is more value conscious. So you will have Budget, Dollar and Thrifty -- three brands focused on the lower price leisure customer, and that is something the regulatory authorities would be looking at.”

The CEO also said Avis Budget had expressed its interest in a deal with Dollar Thrifty on several occasions in the past, but the company never engaged it in any discussion.

Hertz had earlier said its deal with Dollar Thrifty had been in the works since November 2009. The company was not immediately available for comment.

Avis Budget shares were down 4 percent at $14.45 in afternoon trade on the New York Stock Exchange. Shares of Hertz were down 6 percent at $13.66. (Reporting by Bijoy Koyitty and Fareha Khan in Bangalore; Editing by Saumyadeb Chakrabarty)