Avis is no peach, either. Its debt sits at $10.1 billion as of June 30, which includes additional amounts used to acquire Avis Europe for $1.8 billion. The deal makes strategic sense because it brings the Avis and Budget brands together under one roof globally. In addition, based on the latest six months ended June 30, the acquisition boosts revenues by 35% and pretax income by 17%. Enterprise, which also owns Alamo and National, has 40% of the U.S. market.
No one is going to knock Enterprise off its perch, so the battle for Dollar Thrifty became a fight for the No. 2 spot. I’m guessing that when it became clear to Avis management that it was going to take more than $70 per share to secure Dollar Thrifty, it started looking at the Europe acquisition as a cheaper and quite possibly better alternative. It’s now operating in 150 countries, including Germany, France, Britain and Spain, with yearly revenues of $7 billion. Europe won’t always be in an economic funk.
After the Avis Europe deal, Avis has approximately $2.62 in cash. If you back that out of its Oct. 4 stock price of $9.49, it’s trading at 3.9 times its 2012 earnings per share estimate of $1.76. Meanwhile, if you do the same for Hertz, its multiple is 5.3 times its 2012 EPS estimate of $1.33, and that’s before the Dollar Thrifty acquisition. Avis might have surrendered the battle, but I think it won the war.
As of this writing, Will Ashworth did not own a position in any of the aforementioned stocks.