Dollar Thrifty Shareholders Seek to Stop Vote on Hertz Global Buyout Vote
Dollar Thrifty Automotive Group Inc. investors asked a judge to stop a shareholder vote on Hertz Global Holdings Inc.’s $1.1 billion acquisition of the U.S.’s fourth-largest rental car company.
Dollar Thrifty’s board isn’t giving enough credence to a $1.3 billion competing offer from Avis Budget Group Inc. and acceded to Hertz’s demands that it not seek other bids, lawyers for disgruntled Dollar Thrifty shareholders told Delaware Chancery Court Judge Leo Strine at a hearing today. The judge said he’d rule later on whether a Sept. 16 shareholder vote over the buyout can proceed.
Hertz’s offer amounts to a “terrible price” for Dollar Thrifty’s shares, Stephen Grygiel, a lawyer representing the shareholders, said at the hearing in Wilmington.
Pension funds in California and Florida who invested in Dollar Thrifty shares sued the firm’s directors in May seeking more in the cash-and-stock deal, initially valued at $1.1 billion, or about $41 a share.
Hertz, based in Park Ridge, New Jersey, said April 26 it would buy Tulsa, Oklahoma-based Dollar Thrifty. Hertz is the second-largest U.S. rental car company behind closely held Enterprise Holdings Inc.
Officials of Parsippany, New Jersey-based Avis, the third- largest U.S. rental car company, said last month they would pay $46.50 a share in cash and stock for Dollar Thrifty.
Termination Fee
A rebound in the travel market has made Dollar Thrifty an attractive target, analysts say. The company focuses on leisure rather than business travelers, Fred Lowrance, an analyst at Avondale Partners LLC in Nashville, Tennessee, said last month. Hertz is looking to improve its share of that segment of the rental market, he added.
Unlike Avis’s bid, Hertz’s offer doesn’t have any financing problems and was the result of a contentious round of negotiations, Mitchell Lowenthal, a New York-based lawyer representing Dollar Thrifty’s board, told Strine.
The negotiations were “the antithesis of some kind of sweetheart arrangement,” Lowenthal said.
If Dollar Thrifty accepts Avis’s offer, it could have to pay Hertz as much as $49.6 million for terminating the deal, according to court filings. That includes a so-called breakup fee of $44.6 million and as much as $5 million in expenses.
‘No-Premium Deal’
That termination fee is excessive and is designed to scare off other bidders, Grygiel said today. Dollar Thrifty’s board is violating its duty to shareholders by sticking with Hertz’s inferior offer, he said.
Dollar Thrifty’s directors “sought and consummated a no- premium deal despite the obvious concern that shareholders would not get full value,” Michael Barry, one of the investors’ lawyers, said in an Aug. 20 court filing.
Strine noted during the hearing that Dollar Thrifty officials said Hertz’s offer provided more “deal certainty” and that insured shareholders would get something for their stock.
“You guys are obsessed with the premium,” Strine told Grygiel today.
The shareholders’ lawyer also noted Dollar Thrifty’s board is being advised by bankers from Goldman Sachs Group Inc. and JPMorgan Chase & Co. who have conflicts-of-interest problems, investors claim.
Repaying a Debt
Dollar Thrifty hired the New York-based banks to handle a stock offering in September 2009. Goldman bankers used information gathered from that engagement to convince two former colleagues who sit on Hertz’s board to prod the firm into making a bid for the rival car-rental company, according to a court filing.
Investors also contend Scott Thompson, Dollar Thrifty’s chief executive officer, only hired Goldman as an extra adviser on the Hertz deal to repay a debt to the investment bank, according to the filing.
Thompson, the former chief financial officer of Group 1 Automotive Inc., was “massively bailed out” by Goldman during his tenure at the owner of car dealerships and collision centers, according to the filing. Goldman helped Houston-based Group 1 with its initial public stock offering in 1997, according to data compiled by Bloomberg.
“In Scott’s words, he would not have had any job if not for GS,” Mark Pinsky, a JPMorgan banker, said in an e-mail quoted in the filing. “He has a tremendous amount of loyalty” to Goldman, Pinsky added.
Adding Goldman to the deal cost JP Morgan $2 million in fees and forced Dollar Thrifty to shell out an additional $5 million, according to the court filing.
Investors want the vote delayed until government regulators an antitrust review of Hertz’s buyout of its smaller rival, according to the filing.
Strine, who said investors wanted him to “second guess” Dollar Thrifty director’s decision to back Hertz’s offer, said he’d rule on the case before shareholders are asked to vote on it.
The case is In re Dollar Thrifty Shareholder Litigation, consolidated CA5458, Delaware Chancery Court (Wilmington).
To contact the reporters on this story: Jef Feeley in Wilmington, Delaware, at jfeeley@bloomberg.net; Phil Milford in Wilmington, Delaware, at pmilford@bloomberg.net.
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