Avis Acquiring Zipcar In A $500M Deal

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Avis Budget Group Inc. (NASDAQ:CAR) is set to acquire car-sharing company, Zipcar Inc (NASDAQ:ZIP), as a fully owned subsidiary in a deal estimated at nearly $500 million. The company plans to add car-sharing to its traditional car rental business. The car rental company Avis, will be joining rivals Hertz Global Holdings, Inc. (NYSE:HTZ) and Enterprise Holdings in the car-sharing business, as the slowdown in the economy continues to boost the prospects of the fast-growing market.

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Avis has offered to buy Zipcar Inc (NASDAQ:ZIP) at a value equivalent to $12.25 per share, or at a premium of 49 percent on the company’s closing price as at Dec 31, 2012. Meanwhile, Zipcar stock rallied to $12.16 per share during pre-market hours on Wednesday following the announcement.

The chief executive officer for Avis Budget Group Inc. (NASDAQ:CAR) was quoted by Reuters in a statement saying, “We see car sharing as highly complementary to traditional car rental, with rapid growth potential and representing a scalable opportunity for us as a combined company”. Zipcar was founded in 2000, and claims to have more than 760,000 members, dubbed Zipsters. The company will operate as a subsidiary of Avis and is present in 20 metropolitan areas including U.S, Canada, Europe.

Zipcar Inc (NASDAQ:ZIP) expects to report profits in the region of $4 million for the year 2012. Zipcar is the pioneer of car-sharing service in the U.S and Avis foresees synergy gains of about $50 to $70 million from the deal. The new deal also includes a clause on Scott W. Griffith, Zipcar’s chief executive, and Mark D. Norman, its president and chief operating officer staying on post acquisition.

Avis is also expected to pocket significant benefits in terms of cost reduction after the acquisition of Zipcar, including savings on its fleet. The deal will be closed in the spring of 2013 according to the schedule, and Avis expects to fund the transaction partly with additional debt, and available cash.

Avis, which has been, relegated to the third position in the $22 billion U.S car rental business plans to regain a huge chunk of its lost market share with the acquisition of Zipcar. Car rental business is being cannibalized by car-sharing business due to the rising gasoline prices. Hertz and Enterprise are already active in Car-sharing business, therefore hold a massive advantage over Avis. However, it remains to be seen whether or not the two titans can continue their dominance in 2013.

Avis Budget Group Inc. (NASDAQ:CAR) stock closed at $19.82 in 2012.

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