The Federal Trade Commission (FTC) gave its final consent to Hertz’s acquisition of the Dollar Thrifty Automotive Group, Inc. (OTCMKTS:DTGF), Hertz announced earlier today. Hertz Global Holdings, Inc. (NYSE:HTZ) originally bought Dollar Thrifty in 2012, following two years of wrangling, pursuant to an interim agreement and a proposed consent order with the FTC. The company said that the terms of the proposed consent order had not been significantly changed.
“We are pleased that the FTC has officially concluded its review of the Dollar Thrifty Automotive Group, Inc. (OTCMKTS:DTGF) transaction,” said Hertz Global Holdings, Inc. (NYSE:HTZ) Chairman and CEO Mark Frissora. “The result has been a transaction that we believe will benefit our customers and shareholders for years to come.”
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Hertz strengthens its market position
Hertz Global Holdings, Inc. (NYSE:HTZ) bought Dollar Thrifty Automotive Group, Inc. (OTCMKTS:DTGF) for $2.3 billion, report Bloomberg’s Sara Forden and Mark Clothier. When the deal was first announced Enterprise Rent-A-Car had the lion’s share of the rental car market, while Enterprise, Hertz Global Holdings, Inc. (NYSE:HTZ), and Avis Budget Group collectively held 75 percent of the market. Dollar Thrifty was the fourth largest company with 5 percent market share, and no other company had more than 1 percent of the market.
To alleviate anti-trust concerns Hertz Global Holdings, Inc. (NYSE:HTZ) will sell the Advantage brand and 29 other locations to Franchise Services of North America. The FTC said that the deal would have hurt competition at 72 airports across the country without the divestiture, and is concerned about maintaining a healthy level of competition in the rental car market after a number of previous mergers. Bloomberg reports that the deal is meant to maintain four competitive, nation-wide rental car companies.
Even with this agreement in place, approval was withheld for seven months longer than some in the industry expected. The FTC normally approves requests after a 30-day comment period that would have ended in December 2012.
Analysts predict rising earnings
Analysts speculate that the deal may help all three big car rental firms by allowing them to increase prices. In May hedge fund Kase Capital co-founder Whitney Tilson told investors, “the market underestimates the improved pricing environment,” Bloomberg reports. “There can be a decade-long tailwind of strong top-line growth combined with improving pricing, margins, and return on capital, leading to rapidly rising earnings,” he continued.
While the FTC is satisfied that the deal will not harm consumers, the industry will now be dominated by three companies instead of four, giving those companies the option of pursuing profits instead of fighting for market share.