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After long fight, Hertz reaches deal for Dollar Thrifty

by William McConnell | Published August 27, 2012 at 9:21 AM

Hertz Global Holdings Inc. and Dollar Thrifty Automotive Group Inc. Sunday night, Aug. 26, announced they have finally reached a definitive merger agreement under which Hertz would acquire its car rental rival for $87.50 per share in cash or $2.3 billion.

The agreement is expected to finally bring to a close Hertz's multiyear takeover effort. To win antitrust approval from the Federal Trade Commission, Hertz also announced at it has reached an agreement to sell its mid-priced Advantage business to Franchise Services of North America Inc., or FSNA, and Macquarie Capital. Park Ridge, N.J.-based Hertz has been vetting the spinoff to FSNA with FTC staff and the divestiture must still be approved by the five FTC commissioners.

FSNA is a rental car operator based in Ridgeland, Miss., whose brands include U-Save, Rent-a-Wreck, Practicar and X Press Rent-a-Car. The closing of that divestiture is conditioned upon FTC approval of the Advantage and Dollar Thrift transactions and Hertz completing the acquisition of Dollar Thrifty.

FTC approval would end a long fight over Tulsa, Okla.-based Dollar Thrifty. A $1.45 billion offer from Hertz in April 2010 was thwarted when Avis Budget Group Inc. countered with its own $1.5 billion offer three months later. After Avis failed to win antitrust approval, Hertz made a new $2 billion bid for Dollar Thrifty in May 2011 but withdrew the offer in October to focus on first winning FTC approval. Regulators have been worried that by Hertz taking over midtier brand Dollar Thrifty, the market will lose Advantage as a midpriced competitor. Hertz's flagship brand is geared to business and higher-end vacation travelers.

Hertz said it "has remained closely engaged with the FTC to secure antitrust clearance for the proposed transaction and Dollar Thrifty will fully cooperate in the process."

The combination of Hertz and Dollar Thrifty will create a global, multibrand rental car leader offering customers a full range of rental options through its strong premium and value brands. The boards of directors of both companies unanimously approved the transaction.

"We are pleased to have finally reached an agreement with Dollar Thrifty after a lengthy -- but worthwhile -- pursuit," Hertz chairman and CEO Mark P. Frissora said in a prepared statement. "The transaction provides Hertz instant scale with two new, well-established brands with airport concession infrastructure in the mid-tier value segment. We'll be a stronger global competitive player with a full range of rental options not only in the U.S. but in Europe and other markets given Dollar Thrifty's strong international presence. In addition, we look forward to moving efficiently and swiftly through the regulatory process having reached an agreement to divest our Advantage brand."

Scott Thompson, Dollar Thrifty chairman and CEO said, "Hertz has made a compelling offer to our stockholders that reflects the strength of our business and our team. Hertz is the logical partner for us with the resources to expand our value focused leisure brands in key car rental markets around the world. After three years of merger-related activity and speculation, I am pleased that we have reached a win-win transaction for both Hertz and Dollar Thrifty."

Hertz officials said the combination provides the buyer with "multiple strategic options" to serve both corporate and leisure businesses in all three price tiers of the car rental market. The combined company would have total sales of $10.2 billion and Ebitda of approximately $1.8 billion across approximately 10,000 locations globally. Hertz officials said the transaction also creates significant growth opportunities by allowing Hertz to "aggressively pursue mid-tier value and premium markets with dedicated brands, and compete even more effectively with its multi-brand peers."

They predicted the combination would create at least $160 million of annual cost synergies, "including higher productivity and efficiency from shared assets, the elimination of duplicate functions and better deals from suppliers."

The transaction is being structured as a two-step acquisition with a cash tender offer for all outstanding shares of Dollar Thrifty common stock followed by a cash merger in which Hertz would acquire any remaining outstanding shares of Dollar Thrifty common stock. The transaction is subject to the tender of at least a majority of the shares of Dollar Thrifty common stock, as well as other customary closing conditions.

Lazard, Barclays plc, Bank of America Merrill Lynch and Deutsche Bank AG are acting as financial advisers to Hertz. Barclays will serve as dealer manager for the tender offer. Barclays, Bank of America Merrill Lynch and Deutsche Bank will provide financing for the transaction. Cravath, Swaine & Moore LLP, Debevoise & Plimpton LLP and Jones Day are providing legal assistance to Hertz.

JPMorgan Chase & Co. and Goldman, Sachs & Co. are advising Dollar Thrifty. Cleary Gottlieb Steen & Hamilton LLP is counsel to the target.

Hertz and Dollar Thrifty will hold a conference call to discuss the transaction Monday, Aug. 27, at 9:00 a.m. EDT. A slide presentation is available on Hertz's investor relations website www.hertz.com/investorrelations and Dollar Thrifty's website www.dtag.com. In addition to the websites, the conference call also can be accessed by dialing 800-230-1059 or 612-234-9959 for international callers. The access code is 258689.

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After long fight, Hertz reaches deal for Dollar Thrifty

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