Hertz Global Holdings Inc., the world’s largest car-rental company by market value, agreed to buy Dollar Thrifty Automotive Group Inc. for about $1.2 billion in cash and stock as a rebounding global economy spurs travel.
The offer is worth $41 a share, Park Ridge, New Jersey- based Hertz said today, a 5.5 percent premium from April 23. Hertz rose as much as 21 percent in New York trading to a 27- month high and Dollar reached $42.60, the most since June 2007 and exceeding the purchase price in a sign that investors may expect Hertz to have to pay more.
Hertz adds Dollar and Thrifty to its namesake and Advantage brands to extend its lead over Avis Budget Group Inc. as demand increases from the recession. Hertz, which also raised its full- year earnings forecast, will expand its global network to 9,800 outlets to gain sales outside the U.S.
“This gives them a four-brand strategy, which should give them an advantage competitively and allow them to share one back office and an opportunity to share fleet,” said John Healy, an analyst at Northcoast Research Holdings in Cleveland. “It seems to be very beneficial for Hertz shareholders.”
The International Monetary Fund last week raised its 2010 global growth forecast to 4.2 percent from 3.9 percent. Worldwide airline passenger traffic rose 9.5 percent in February from a year earlier, the biggest jump in more than two years, according to the International Air Transport Association.
“This adds a mid-level brand that should supplement the high-price and status brand of Hertz,” said Bob McAdoo, a senior analyst at Nashville, Tennessee-based Avondale Partners LLC.
Hertz climbed $2.03 to $14.91 at 1:20 p.m. in New York, after reaching $15.60, giving it a market value of $6.09 billion. It gained 1.2 percent on April 23. Dollar, based in Tulsa, Oklahoma, rose $3.64 to $42.49 for a market value of $1.22 billion. Parsippany, New Jersey-based Avis rose 13 percent to $16.57, the biggest gain since June 2008.
Hertz’s 10.5 percent notes due in January 2016 increased 0.63 cent to 107.63 cents on the dollar at 1:14 p.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The yield fell to 8.76 percent.
The acquisition will result in cost savings of at least $180 million, including car purchasing and information technology systems, Hertz said.
Adds to Earnings
“The deal is attractive, accretive to earnings,” Chairman and Chief Executive Officer Mark P. Frissora said in a statement.
The terms call for Dollar shareholders will receive $32.80 in cash, including the dividend from Dollar, and 0.6366 of a Hertz share for each stock they hold, according to the statement. The share price was based on April 23 close, Hertz said. Dollar has 28.6 million shares outstanding, according to data compiled by Bloomberg.
Hertz said today it expects to report full-year adjusted pretax income of $290 million to $305 million and sales of as much as $7.7 billion. First-quarter sales increased 6.1 percent to $1.7 billion. The company narrowed its net loss in the period to $150.4 million from $163.5 million.
Barclays Plc and Bank of America Corp.’s Merrill Lynch advised Hertz on the deal, with Debevoise & Plimpton LLP and Jones Day providing legal advice. Dollar was advised by JPMorgan Chase & Co., Goldman Sachs Group Inc. and law firm Cleary Gottlieb Steen & Hamilton LLP.
North American companies have been involved in acquisitions worth $261 billion so far this year, falling from $364 billion a year earlier, according to data compiled by Bloomberg. The global figure is $616 billion, compared with the year-earlier $610 billion.
Hertz is the largest worldwide airport car-rental brand, operating from more than 8,200 locations in 146 countries, the release said. Ford Motor Co. in December 2005 sold Hertz to Clayton Dubilier & Rice Inc., the Carlyle Group and Merrill Lynch’s buyout unit. The car-rental company raised $1.32 billion in an initial share sale less than a year later.
To contact the reporter on this story: Kae Inoue in Tokyo at email@example.com