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Hertz divestiture to U-Save gains FTC traction

by William McConnell in Washington | Published June 13, 2012 at 12:44 PM

Hertz Global Holdings Inc. and Federal Trade Commission staff members appear to have resolved differences over a plan that would call for the company to divest its Advantage brand to the parent of rental car rival U-Save in order to win antitrust approval for Hertz's long-sought acquisition of Dollar Thrifty Automotive Group Inc.

Hertz officials said in May that they had reached a "material agreement" to divest its Advantage rental-car brand to win FTC clearance for the Dollar Thrifty deal. However, final agreement with FTC staff had been delayed because of regulators' concerns about Hertz's plan to finance the purchase of Advantage by U-Save, which is a thinly traded public company with limited access to the capital markets. A source following the discussions said the FTC's concerns have been resolved, although it was unclear what terms have been changed.

The divestiture package must still be approved by the five FTC commissioners, and it remains uncertain how quickly a settlement would be presented to them because there is currently no merger agreement between Hertz and Dollar Thrifty.

Hertz has engaged in a two-year battle to acquire Dollar Thrifty and penned a $1.45 billion deal in April 2010. Avis Budget Group Inc. broke up that deal when it 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 winning FTC approval first and then renewing talks with Dollar Thrifty for a price that reflects market conditions when antitrust approval is finally obtained.

U-Save is owned by Franchise Services of North America Inc., which also operates the Rent-A-Wreck of Canada brand, some rental fleet insurance operations and other car and truck rental units.

FSNA trades on the Toronto Stock Exchange's TSX Venture Exchange.

Hertz's FTC lawyer did not return a phone call, and a FSNA official would not comment.

Since its founding 30 years ago, U-Save has focused primarily on rentals to residents of local markets but has been expanding recently into the airport market. It now has 1,100 rental locations in the U.S. and serves 31 airport markets in 12 states and 7 countries.

The company said it plans to increase the number of airport locations, which it would accomplish by acquiring Advantage.

In its most recent financial statement, FSNA said it does not plan to use significant amounts of cash for capital asset acquisitions but intends to meet them through operating cash flow and working capital. The company has a $2.5 million working capital facility that matures in December 2012. The company said it continues to explore alternative sources of working capital.

FSNA is run by co-CEOs and co-chairmen Thomas McDonnell and Sanford Miller. McDonnell joined U-Save in 1994 as a franchisee and bought the company's network two years later. Miller was asked to share the executive duties in 2004 after stepping down as chairman and CEO of Budget Group, which had just been acquired by Avis. FSNA chief operating officer Robert Barton is also a Budget Group veteran. After leaving Budget in 2000, Barton served as an executive director of Dollar-Thrifty until 2003. He also joined FSNA in 2004.

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