Avis Budget Group Inc. (CAR) agreed to pay 636 million pounds ($1.04 billion) for Avis Europe Plc (AVE), the second-biggest car-rental company on the continent, possibly taking Avis Budget out of the bidding for Dollar Thrifty Automotive Group Inc. (DTG)
Avis Budget will pay 315 pence a share for the European company, which is majority owned by Belgian auto dealer D’Ieteren SA (DIE), the two companies said in a statement. The price is 60 percent higher than yesterday’s close of 196.6 pence.
The combination will give Parsippany, New Jersey-based Avis Budget control of the London-based company’s 3,100 Avis outlets and 950 Budget locations. Avis Europe operates in 112 countries in Europe, Africa, the Middle East and Asia. The acquisition comes as Avis Budget bids against Hertz Global Holdings Inc. (HTZ) for Dollar Thrifty, the third-biggest U.S. car-rental company.
“Avis Budget is offering a considerable premium, but that’s still less than Dollar Thrifty,” said Marc-Rene Tonn, a Hamburg-based analyst with M.M. Warburg. The deal values Avis Europe at about 13 times estimated earnings per share, compared with about 17 times for the Dollar Thrifty offer, Tonn said.
Avis Europe, which licenses the Avis brand from the U.S. rental-car chain, rose 114.1 pence, or 58 percent, to 310.7 pence today in London trading. The stock has gained 31 percent this year, valuing the company at 608 million pounds.
Avis Budget and Hertz, the two largest publicly traded U.S. rental-car chains, have been bidding for Tulsa, Oklahoma-based Dollar Thrifty since April 2010. Dollar Thrifty recommended on June 6 that investors not accept Hertz’s latest bid because it undervalues the company. Hertz’s cash-and-stock offer, which was $2.24 billion, or $72 a share, when it was announced May 9, is valued at $2.05 billion, or $70.76 a share.
Ron Nelson, Avis Budget’s chief executive officer, declined to answer questions about Avis’s interest in Dollar Thrifty from analysts on a conference call today, other than to say the company will monitor the situation. In October, Avis offered what is now valued $1.65 billion, or $57.02 a share, for Dollar Thrifty and the two companies have been waiting for a U.S. antitrust review.
Dollar Thrifty fell $7.44, or 9.3 percent, to $72.43 at 4:15 p.m. in New York Stock Exchange composite trading, the biggest daily drop since October 2009. Hertz, based in Park Ridge, New Jersey, rose $1.28, or 9.1 percent, to $15.40, the most since July. Avis gained $1.21, or 7.6 percent, to $17.17, the largest increase since November.
Avis Europe Chief Executive Officer Pascal Bazin said in a telephone interview that “this is an industry which is consolidating worldwide. Actors will be less and less and bigger and stronger.”
Avis Budget said it will pay for the acquisition with available cash and the potential sale of as much as $250 million in new shares and debt. The combination would create a rental- car company with annual sales of about $7 billion.
D’Ieteren, which owns about 60 percent of Avis Europe, has accepted the offer.
The purchase, which requires approval of 75 percent of Avis Europe investors by value, is expected to close in October, Avis Budget said. The company anticipates $30 million a year in synergies.
“The transaction re-unites the global operation of the Avis and Budget brands under one corporate umbrella, and is both financially and strategically compelling,” Nelson said. Avis Budget said it expects that the transaction will add to earnings per share, excluding acquisition-related charges.
Morgan Stanley (MS) and Citigroup Inc. (C) are advising Avis Budget, while Barclays Capital advised Avis Europe. Avis Budget said it’s not expecting antitrust obstacles because of a lack of overlapping operations.
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