Hertz Bid For Dollar Thrifty Runs Into Headwinds at FTC
Hertz Global Holdings Inc. (HTZ)’s bid for antitrust clearance to buy Dollar Thrifty Automotive Group Inc. has met resistance at the U.S. Federal Trade Commission, according to people familiar with the situation.
An understanding that the deal could be approved with conditions, reached with the FTC’s Bureau of Competition, faces opposition at the agency’s Bureau of Economics, where some staffers think the $2.6 billion merger should be blocked, said the people, who declined to be identified because the matter isn’t public. The two bureaus submit their recommendations to the five-member commission, which makes the final decision.
Hertz, based in Park Ridge, New Jersey, announced the acquisition on Aug. 26 and it said it expected FTC approval by mid-October. On Oct. 18, Hertz extended the deadline for the FTC to rule on the transaction to Nov. 16 from Oct. 31 because the agency needed more time to complete its review.
“We’re maybe at the last hour, and now the FTC apparently wants to look at more information,” Fred Lowrance, a Nashville, Tennessee-based analyst at Avondale Partners LLC, said in an interview. “It’s a little surprising and frustrating that the process continues to drag on this long.”
Hertz, which has sought to take over Dollar Thrifty (DTG) for more than five years, agreed to sell its Advantage brand to address FTC concerns that the deal would crimp competition in the rental-car market, the people said.
Hertz offered Dollar Thrifty investors $87.50 a share. The difference between the offer price and Dollar Thrifty’s stock price widened to $8.26 from 28 cents on Sept. 4, a sign risk arbitrage investors are less confident the deal will get done.
Cecelia Prewett, an FTC spokeswoman, declined to comment on the status of the agency’s review. Richard Broome, a Hertz spokesman, also declined to comment.
Hertz began its pursuit of Dollar Thrifty in April 2007. In 2010, it made a formal bid of about $1.2 billion, which Dollar Thrifty shareholders rejected. Another offer last year was withdrawn as a result of market conditions, the company said.
As part of the latest agreement to buy Tulsa, Oklahoma- based Dollar Thrifty, Hertz committed to selling its Advantage brand to Franchise Services of North America Inc. (FSN) and Macquarie Group Ltd.’s Macquarie Capital.
FTC investigators are continuing to interview competitors about the deal’s potential impact, while Howard Shelanski, the new director of the Bureau of Economics, is reviewing the case and hasn’t submitted his office’s formal recommendation to the commission, the people said.
The Bureau of Economics’ position could be more influential than usual because of Shelanski, who is both an economist and a lawyer, the people said. Shelanski, who was nominated to the post in May, is also a law professor at Georgetown University. He previously served at the FTC as deputy director of the Bureau of Economics from 2009-2011 and is highly respected within the agency, the people said.
Lawyers for both Hertz and the FTC have started preparing for litigation in case the FTC sues to block the deal, one of the people said.
Under its merger agreement with Dollar Thrifty, Hertz is obliged to do everything it can to conclude the takeover, including litigating against any injunction or other attempt to block the deal.
A non-voting meeting of the agency’s commissioners last week yielded more questions about the transaction, the people said. A final decision requires the votes of three of the agency’s five commissioners.
“Until the commission decides, there may be a lot of information that keeps coming to light and keeps getting looked at,” said Roxann Henry, a partner with Morrison Foerster LLP in Washington. “After two years, they are going to make certain they have all the facts and don’t get it wrong.”
Some regulators at the FTC are concerned consumers will be hurt particularly at airport locations by further concentration in the industry, the people said.
If the Dollar Thrifty deal is approved, the U.S. rental-car industry will have shrunk in the past half-decade from five major companies to three, highlighted by Enterprise Holdings Inc.’s 2007 acquisition of Vanguard Car Rental Group Inc., owner of the National and Alamo brands.
The four largest companies -- Enterprise, Hertz, Avis Budget Group Inc. (CAR) and Dollar Thrifty -- control 80 percent of the U.S. market, according to market researcher IBISWorld.
The number of U.S. rental-car locations has fallen to 17,037 this year from a peak of 17,331 in 2007, IBISWorld said in a report on the U.S. market in February. That number will decline to 16,878 by 2017, Santa Monica, California-based IBISWorld estimates.
“Companies will only need to give the commission more time when there are unresolved issues,” said William Vigdor, an antitrust lawyer with Vinson & Elkins LLP in Washington, who served at the FTC for six years. “Clearly the jury is still out on whether the transaction will be approved.”