Ever since late April, when Hertz Global Holdings (NYSE: HTZ) made its original offer for Dollar Thrifty Automotive Group Inc. (NYSE: DTG), Avis Budget Group, Inc. (NYSE: CAR) has been trying to upset the deal and get Dollar to accept a counter offer. Avis just sweetened the pot, offering $40.75 in cash and 0.6543 shares of Avis stock for each share of Dollar Thrifty. The total deal is worth about $1.35 billion, more than Hertz’s last offer of $1.1 billion.
But Hertz could still hold the higher hand, given that Dollar Thrifty shareholders are scheduled to meet on September 16th to vote on the Hertz offer.
Hertz and Avis are each trying to paint the other as facing difficult regulatory approval should Dollar Thrifty accept either bid. Hertz has pointed out that Avis already owns a low-price brand, Budget, and would face regulatory difficulty in adding yet another low-price brand to its stable. Avis denies that claim, saying that Hertz artificially groups the Dollar and Thrifty brands together with Budget even though Hertz knows “full well” that Budget is a mid-tier brand. Avis claims that Dollar, Thrifty, and Enterprise brands “are in a value segment that falls below the mid-tier.” Privately held Enterprise Holdings Inc. is the largest US car rental company.
Another sticking point for the Avis offer is the company’s refusal to include a reverse termination fee. Hertz has put up a $50 million reverse fee in the event that the Hertz-Dollar Thrifty deal is scuttled by regulators. Avis claims that Hertz’s unlimited matching rights to any competing bid for Dollar Thrifty more than compensates for Avis’s refusal to add a reverse termination fee.
Both Hertz and Avis have agreed to sell certain assets in the event that one prevails in the bidding. Hertz says it will divest assets that generate about $175 million in annual revenue and will sell its Advantage Rent a Car brand. Avis claims it will sell assets that generate about $325 million in annual revenue.
The struggle for Dollar Thrifty is sort of a slow-motion replay of the fast and furious bidding war between Dell Inc. (NASDAQ: DELL) and Hewlett-Packard Co. (NYSE: HPQ) for storage firm 3Par Inc. (NYSE: PAR). There’s also more verbal sparring between Hertz and Avis because Dollar Thrifty is a significant win for whichever company gets the deal.
Dollar Thrifty shares have a 52-week trading range of $17.72-$52.05. Its shares are currently trading at $48.31, up about 0.5% from yesterday’s close. Investors are clearly expecting more bidding action.
As of this writing, Paul Ausick did not own a position in any of the stocks named here.
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