Avis May Have to Sell Assets to Get Thrifty
The FTC could require Avis to sell off parts of the merged companies to preserve competition in the rental-car market or even spin off one of its brands, antitrust lawyers and industry analysts said.
Avis, based in Parsippany, New Jersey, and Dollar Thrifty are seeking the FTC’s backing for Avis’s most recent takeover offer of $1.57 billion. John Healy, an analyst with Northcoast Research Holdings LLC in Cleveland, said the FTC may announce a decision in the case as early as next month.
Avis has said it is willing to sell parts of its business that generate as much as $325 million in annual revenue, or 6 percent of last year’s $5.1 billion in sales. In June, Avis said the FTC requested more documents from the company.
The FTC could decide divestitures are insufficient and challenge the acquisition in court, said Herb Hovenkamp, a professor at the University of Iowa Law School in Iowa City and the author of “Antitrust Law,” a 23-volume text. The agency probably is in the middle of a city-by-city, airport-by-airport review of the Avis proposal, he said.
“If you have to divest everywhere to make it work, there’s no point in having the merger,” Hovenkamp said in an interview.
Andrew Siegel, an Avis spokesman, and Stephanie Pillersdorf, a Dollar Thrifty spokeswoman, declined to comment. Peter Kaplan, an FTC spokesman, also declined to comment while the investigation continues.
The four largest U.S. rental-car companies account for 81 percent of the industry’s revenue, according to IBISWorld, a Santa Monica, California-based industry researcher. Based on 2009 revenue, Enterprise Rent-A-Car Co. is No. 1, followed by Hertz, Avis and Dollar Thrifty.
The FTC is focusing on how much Dollar Thrifty and Avis’s Budget brand compete for the same mid-tier customers, and if a merger would give those customers too few choices, antitrust lawyers said.
Avis’s Budget brand and Dollar Thrifty alone control almost 60 percent of the mid-tier market aimed at price-conscious customers, said Neil Abrams, president of the Purchase, New York-based Abrams Consulting Group, which advises corporate clients on the car-rental industry.
San Francisco-based antitrust attorney Joseph Alioto said he plans to sue on behalf of business travelers and car-rental franchise owners to block the acquisition.
The Avis-Dollar Thrifty deal would ensure that consumers “are going to pay more. They’re going to get less service. They’re going to get less-quality cars,” Alioto said in an interview.
The advantages of market consolidation have helped propel a five-month fight for Dollar Thrifty between Avis and Hertz Global Holdings Inc.
Investors in Tulsa, Oklahoma-based Dollar Thrifty rejected a $1.44 billion bid from Hertz, the largest worldwide airport car-rental brand, on Sept. 30, providing an opening for Avis to buy the company.
The winner of the bidding war would become the second- largest U.S. auto-rental chain by revenue, trailing only closely held Enterprise.
On Oct. 6, Chief Executive Officer Mark Frissora of Park Ridge, New Jersey-based Hertz, said he would consider buying Thrifty, Budget or Dollar if one of the brands was spun off.
Benefits for Both
That means Hertz and Avis could both benefit from increased consolidation, Healy said.
“Avis has another good leisure brand with Dollar, so there are cost synergies,” he said. “Hertz would get Thrifty for probably a below-average multiple” if it was spun off rather than sold as a standalone company.
With the FTC’s timetable on the deal unclear, Avis had delayed completing its formal bid for Dollar Thrifty. Avis Chief Executive Officer Ronald Nelson said on Nov. 9 he would put it off until the first quarter of 2011. Avis had agreed last month to delay an exchange offer until Dec. 30.
The overlap in Dollar Thrifty’s and Budget’s businesses will cause more concern at the agency than any competitive issues that would have been posed by Hertz’s acquisition proposal, Abrams said. Antitrust attorneys said that means any remedy the government seeks will require more of a sell-off than Hertz’s offer to divest itself of its Advantage brand.
Complicating the government analysis are changing discounts that make it hard to figure out which companies consistently compete against each other on price.
Government officials also may have to examine the contracts Fortune 500 companies have with Avis and Dollar Thrifty to ensure they don’t pay more for reduced services if the acquisition is approved, Krauss said.
“Hertz was a cleaner deal,” Abrams said in an interview. “Avis Budget is a little more complicated.”