Hertz Global Holdings Inc. (HTZ) and Avis Budget Group Inc. (CAR) may push Dollar Thrifty Automotive Group Inc. (DTG)’s share price as high as $100 as they bid to be the second- largest U.S. rental-car company, analysts said.
Dollar Thrifty, which rose 99 cents to $81.20 at 4:01 p.m. in New York Stock Exchange composite trading, is 13 percent higher than the $72-a-share value of Hertz’s most recent offer when it was made May 9. Avis bid $53 a share in September and has been seeking U.S. Federal Trade Commission approval.
Dollar Thrifty, the third-largest publicly traded rental- car chain, more than doubled in New York trading since April 25, 2010, the day before Hertz announced its first offer. Hertz has boosted the cash and stock portions of its bid and has said the acquisition will add to earnings in the year it’s completed.
“The numbers still make sense past $100,” Fred Lowrance, an analyst with Avondale Partners LLC in Nashville, Tennessee, said in an interview. “Some of the larger shareholders in Hertz and Avis probably wouldn’t push back too hard if the price gets toward $90. If it’s past $90 toward $100, shareholders may start pushing back.”
Hertz’s offer would be worth $71.04 a share based on today’s closing share prices, while Avis’s would be valued at $56.77. Hertz’s offer would be worth a total of $2.06 billion, topping Avis’s $1.64 billion bid. Those figures exclude options and equity awards.
Bill Kavaler, senior special situations analyst at Oscar Gruss & Son Inc. in New York, said the price could go to $100 and still add to earnings for Hertz. Kavaler said he doesn’t expect the bidding to go that high because Avis will drop its pursuit.
Hertz and Avis investors may object to bids that high, said Stephen O’Hara, an analyst with Sidoti & Co. He expects the Dollar Thrifty offers to stop at around $90.
“I think $100 is reasonable, running the numbers,” he said in an interview. “I think it would be tough to get the boards in tune with that kind of thinking. But what this really depends on is Avis. If Avis doesn’t come back with an offer, then Hertz is the only bid out there.”
Savings from a merger would more than cover the cost of financing the takeover, even at $100 a share, Lowrance said. Avis would increase earnings per share by 14 cents in the first year at that price, while Hertz would add 13 cents, he said.
Stephanie Pillersdorf, a spokeswoman for Tulsa, Oklahoma- based Dollar Thrifty, and Andrew Siegel, a spokesman for Parsippany, New Jersey-based Avis, declined to comment. Richard Broome, a Hertz spokesman, didn’t return an e-mail seeking comment.
Dollar Thrifty had fallen from $53 on March 22, 2007, to 62 cents on March 3, 2009. Hertz offered on May 9 to buy the rental-car operator for $57.60 in cash and 0.8546 Hertz shares for each Dollar Thrifty share owned. Avis, on Sept. 23, bid $45.79 in cash and 0.6543 shares of Avis stock.
“It’s a stunning run but the underlying earnings levels are there,” Lowrance said. “Dollar Thrifty is in a unique position where they are small enough to probably get through antitrust but big enough that it actually makes a material impact on the acquirer’s earnings.”
The nation’s four biggest chains generate 83 percent of U.S. car-rental sales, according to IBISWorld, a Santa Monica, California-based researcher. Closely held Enterprise had a 40 percent share, followed by Hertz with 20 percent and Avis with 17 percent. Dollar Thrifty accounted for 5.6 percent of the industry’s sales, according to IBISWorld.
Hertz said yesterday it began an exchange offer for Dollar Thrifty. Dollar Thrifty adopted a provision on May 18 that gives its shareholders the right to purchase a new series of preferred stock to thwart an unwanted takeover.
Hertz fell 4 cents to $15.73. Avis rose 5 cents to $16.78.
Hertz’s latest offer is at least the sixth attempt by Hertz or Avis to buy Dollar Thrifty in the past 13 months, according to data compiled by Bloomberg. In April 2010, Hertz agreed to buy Dollar Thrifty for $41 a share in cash and stock.
Hertz, which operates its namesake premium brand and the Advantage budget brand it acquired in 2009, wants to boost its presence in the mid-tier market, an area in which it is “really uncompetitive,” Chief Executive Officer Mark Frissora said on a conference call with analysts and investors. Hertz has said it expects to sell Advantage to address FTC concerns that it would hold too much of the market.
The U.S. car rental and leasing industry shrunk an average of 2.5 percent a year from 2006 to 2011 as the recession slowed corporate and leisure travel, according to a report this month from IBISWorld. The market is projected to grow 2 percent per year between now and 2016, according to IBISWorld.
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