Hertz travels 'long road' to arrive at Dollar Thrifty acquisition

By Jay Boehmer
After chasing a merger for more than two years, Hertz finally landed Dollar Thrifty Automotive Group with an all-cash transaction totaling $2.6 billion in equity value.

"At last, we're in the home stretch of closing on what will be important brand additions to our rental car business," Hertz CEO Mark Frissora declared at the opening of a conference call with analysts and media this morning.

Frissora said the merger "results in a $10.2 billion company with three distinct brands," with Hertz's continued emphasis on the "premium" business and leisure segments, Dollar targeting "value" business and leisure segments, and Thrifty taking on what Frissora called the "spartan leisure segment."

Last year, Mark Frissorathe four largest U.S. rental car companies — Avis Budget, Dollar Thrifty, Enterprise and Hertz — accounted for nearly 97% of the market at the top 50 U.S. airports, according to Abrams Consulting Group data.

With Dollar Thrifty holding about 12% of that share, Hertz's acquisition places the vast majority of the U.S. market under the control of three major companies.

Frissora last year noted that a Dollar Thrifty acquisition would help Hertz better compete for corporate business, since Hertz's Advantage brand, which now is in the process of being divested, "is too low-price to be on the same rate card with Hertz with a corporate customer." The addition of Dollar Thrifty "fills in the middle for us," he said at the time.

Dollar Thrifty CEO Scott Thompson during today's conference call said, "I believe Hertz will be able to swell the company's product offerings and expand geographically in ways that would be difficult for Dollar Thrifty to do as a stand-alone company."

As one example of that expanded geographic reach, Hertz plans to place Advantage locations in Europe under the Thrifty brand.

Hertz would pay $87.50 per share of Dollar Thrifty stock. Frissora referenced the "long road getting to this point," and, indeed, years have elapsed and stakes have changed since Hertz in April 2010 embarked on a deal to acquire Dollar Thrifty for $41 per share, or about $1.2 billion.

Since then, Hertz and competitor Avis Budget sparred in a months-long bidding war, which effectively ended when Avis signed a merger agreement with Avis Europe.

Left as the lone suitor for Dollar Thrifty, Hertz then became mired in a long antitrust-clearance process with the Federal Trade Commission.

The companies plan to file today an official merger agreement with the Securities and Exchange Commission and plan to close the transaction in the fourth quarter.

Getting there requires some unfinished business with FTC, as Hertz must unload some assets to gain clearance.

"We've signed a purchase agreement for the divestiture of our Advantage assets, as well as certain DTG assets and associated airport concessions," Frissora said, though the company did not disclose buyers.

Pending shareholder and regulatory approvals, the companies expect to "start integration actions before year-end," said Frissora. The boards of both companies have "unanimously" blessed the deal, and MKM Partners analyst Chris Agnew expected the offer to be "well received" by Dollar Thrifty shareholders.

Once combined, the companies expect to ramp up cost and revenue synergies. While executives on Monday did not dig into the sales potential of the combined brands, they envisioned at least $160 million "total annual run-rate cost synergies" in fleet, procurement, information technology, insurance and other areas. Agnew called those estimates "conservative."

Source: Business Travel News 
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