Home Business Hertz to Acquire Dollar Thrifty For $2.3B After Two Years of Pursuit

Hertz to Acquire Dollar Thrifty For $2.3B After Two Years of Pursuit

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Hertz to Acquire Dollar Thrifty For $2.3B After Two Years of Pursuit

The rental car giant, Hertz Global Holdings, Inc. (NYSE:HTZ), announced late Sunday it has acquired its rival, Dollar Thrifty Automotive Group, in a $2.3 billion cash deal. Hertz will be paying $87.50 per share of Dollar Thrifty, an 8 percent premium over Dollar Thrifty’s closing price of $81 per share on Friday.

The Park Ridge, New Jersey-based Hertz would sell off its Advantage Rent a Car unit to Franchise Services of North America and Macquarie Capital. Announcing the acquisition deal, the chairman and CEO of Hertz, Mark P. Frissora said, “We are pleased to have finally reached an agreement with Dollar Thrifty after a lengthy — but worthwhile — pursuit. We have always believed that a combination with Dollar Thrifty is the best strategic option for both companies.” He also added that, given the Dollar Thrifty Automotive Group, Inc. (NYSE:DTG)’s  strong international presence, the two companies will be able to offer a full range of rental options to the US and international customers after the merger.

Dollar Thrifty was a part of Chrysler before it was spun off in 1997. The company went nearly bankrupt during the 2008 economic crisis, but has been recording excellent annual profits since 2009. Dollar Thrifty posted a profit of $159.6 million last year. It has 280 corporate locations in the US and Canada, along with the 1,300 franchise locations in over 80 countries.

Hertz Global Holdings, Inc. (NYSE:HTZ) was a part of Ford Motor Company (NYSE:F) until 2005. It has 8,650 corporate and franchise locations across the world. Hertz expects that the deal will save at least $160 million annually.
Hertz Global Holdings, Inc. (NYSE:HTZ) had been pursuing the deal since 2010, when it first made an offer of $1.2 billion, or approximately $41 per share of Dollar Thrifty. The offer drew another rival, Avis Budget Group into competition. However, the Dollar Thrifty shareholders rejected Hertz’s bid over the anti-trust concerns. Hertz Global Holdings, Inc. (NYSE:HTZ) had arranged several discussions and offers, but every time, the attempt went fruitless over prices and Hertz’s ability to win anti-trust approval.
The two companies continued to make progress over price and a solution to anti-trust problems, and finally announced the merger officially on Sunday. The stock prices of Hertz Global Holdings, Inc. (NYSE:HTZ) were up 14 percent in the pre-market trading on Monday, and Dollar Thrifty jumped 7 percent.

Wells Fargo Equity Research believes that the deal will have many cost synergies, stating:

Cost synergies are significant; accretion is attractive. Hertz estimates it can generate at least $160MM of annual cost synergies from the transaction, modestly below the company’s original estimate of $180MM offered 2+ years ago. The all-cash deal structure benefits our accretion estimate. The company would divest its Advantage brand (about $30MM of corporate EBITDA) to Franchise Services of North America and Macquarie Capital. Inclusive of the lost Advantage profits and the divestiture of certain other assets, we estimate the DTG transaction is $0.25-0.30 EPS accretive to Hertz, which is similar to the level originally we estimated back in 2010. The $160MM of cost savings are projected to be fully achieved over 24 months.

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