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Hertz Makes $2.24 Billion Offer for Dollar Thrifty to Foil Avis

Hertz Makes New Offer for Dollar Thrifty
Hertz aims to thwart the planned combination of Avis and Dollar Thrifty after having an earlier offer rejected. Photographer: Suzanne Plunkett/Bloomberg

Hertz Global Holdings Inc., the largest publicly traded rental-car company, offered to buy Dollar Thrifty Automotive Group Inc. for $2.24 billion in cash and stock, topping a bid by Avis Budget Group Inc.

Hertz offered $72 a share, 24 percent more than Avis’s offer, the Park Ridge, New Jersey-based company said today in a statement. Dollar Thrifty rose $9.58, or 14 percent, to $79.27 at 4:01 p.m. in New York Stock Exchange composite trading, the biggest jump since May 3, 2010, when Avis proposed making a counter bid to Hertz’s original offer.

Hertz aims to thwart the planned combination of Avis and Dollar Thrifty after having an earlier offer rejected. Since then, Parsippany, New Jersey-based Avis and Dollar Thrifty, which has its headquarters in Tulsa, Oklahoma, have been seeking U.S. Federal Trade Commission approval for a deal that would combine the third- and fourth-largest U.S. rental-car companies.

“I feel certain that this will not be the last act of the bidding process either,” Fred Lowrance, an analyst with Avondale Partners LLC in Nashville, Tennessee, said in an e-mail. “I would expect to hear from Avis -- FTC clearance or not -- very soon.”

Hertz’s offer, which isn’t subject to financing conditions, consists of $57.60 in cash and 0.8546 Hertz shares. It valued the offer at $2.24 billion for outstanding shares, options and restricted stock units. Hertz said it expects to begin its exchange offer next week. Hertz said it has held discussions with the FTC and has begun selling its Advantage brand to facilitate approval.

‘Superior Bid’

“We have today made a superior bid,” Chief Executive Officer Mark Frissora said in the statement, which described the offer as an 18 percent premium to the 60-day average share price. “We are seeking a consensual business combination with Dollar Thrifty and are proceeding on an accelerated timetable.”

Hertz said it decided to act after listening to Dollar Thrifty’s and Avis’s conference calls last week discussing their quarterly earnings and hearing little advancement with regulators.

“The timing was right for us to jump in and push through, given the lack of progress over what was happening with the FTC,” Frissora said today on a conference call with analysts and investors. Hertz has been “waiting and watching for a long time.” A deal may close by Sept. 30, he said.

Hertz already owned about 1.6 percent of Dollar Thrifty’s outstanding shares as of April 29, according to a filing today.

Dollar Thrifty’s board is reviewing the offer, the company said in a statement.

Avis Bid

Investors in Dollar Thrifty rejected a $1.44 billion offer from Hertz, the largest worldwide airport car-rental brand, on Sept. 30, providing an opening for Avis to buy the company. At the time, Hertz said the offer was its “best and final.” The winning bidder would become the second-largest U.S. auto-rental chain by revenue, trailing closely held Enterprise.

Avis offered $45.79 and 0.6543 of its shares for Dollar Thrifty and, in early October, agreed to delay an exchange offer while the two began working toward regulatory approval. Avis also offered a $20 million breakup fee that Dollar Thrifty had requested.

Andrew Siegel, an Avis spokesman, declined to comment today.

In January, Dollar Thrifty said the FTC’s position on the potential bid “remains uncertain.” A little more than a month later, Avis said it “remained committed” to acquiring Dollar Thrifty and that it hoped to get clarity from the FTC in a few weeks.

Long Struggle

Before the September vote, Hertz and Avis fought over Dollar Thrifty for almost five months, seeking a bigger share of the U.S. market. The four largest U.S. rental-car companies account for 81 percent of the industry’s revenue, according to IBISWorld.

Hertz is the largest worldwide airport car-rental brand, operating from more than 8,500 locations in 150 countries. 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.

Hertz fell 17 cents, or 1 percent, to $16.68. Avis gained 6 cents to $18.47.

Dollar Thrifty gained 79 percent from the trading day before Hertz announced its first offer on April 26, 2010, through May 6. The shares had fallen from $53 on March 22, 2007, to 62 cents on March 3, 2009.

CDS Trading

The cost to protect Hertz’s debt from default for five years jumped to the highest level since April 27. Credit-default swaps on the company’s debt added 11.3 basis points to 309.5 basis points, according to data provider CMA.

Contracts on Avis added 3.1 basis points to 385.5, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.

Credit-default swaps, which typically fall as investor confidence improves and rise as it deteriorates, pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.

Cravath, Swaine & Moore LLP is representing Hertz in the transaction, the law firm said in an e-mailed statement.

Lazard, Barclays Plc, Bank of America Merrill Lynch and Deutsche Bank AG are acting as financial advisers to Hertz on the offer for Dollar Thrifty.

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