Hertz Looks to Acquire Dollar Thrifty for $1.2 Billion

Hertz Global Holdings Inc. announced April 25 that it would acquire Dollar Thrifty Automotive Group for $1.2 billion in cash and stock, a deal that combines two of the largest car rental companies in the industry.

The deal would give Hertz 1,550 additional locations worldwide and a total of 9,800 across six continents. The combined market share for the Hertz and Dollar Thrifty group would be approximately 24 percent, based on Auto Rental News' 2009 estimates of total fleet size.

"Combining Hertz and Dollar Thrifty is an excellent strategic fit," says Mark P. Frissora, Hertz's chairman and chief executive officer. "Together we will be able to compete even more effectively and efficiently against other multi-brand car rental companies, offering customers a full range of rental options in the U.S. between the Hertz, Dollar, Thrifty and Advantage brands."

Frissora told CNBC that Hertz has had a leisure strategy for years. The company's acquisition of Advantage covered the low-end leisure market and Dollar Thrifty is expected to cover the mid-tier leisure market. Dollar Thrifty will also help Hertz increase its locations outside airports and expand into Europe, he says.

"The combination of Dollar Thrifty with a larger company like Hertz will provide Dollar Thrifty with greater resources and the technology needed to expand our value-focused leisure brands," says Scott L. Thompson, Dollar Thrifty's president and chief executive officer.

Frissora says Hertz identified $180 million in potential synergies in fleet, IT systems and procurement, which will enable the companies to operate at a lower cost. These synergies will benefit Hertz's overall operations, says Christopher Agnew, an analyst with MKM Partners. "Hertz will have scale benefits to better manage fleet costs and fleet remarketing. Hertz can utilize its stronger balance sheet to fund Dollar Thrifty's currently less efficient balance sheet," he says. 

Dollar Thrifty employs about 6,000 people worldwide and is headquartered in Tulsa, Okla. Hertz is based in Park Ridge, N.J., but has a service center in Oklahoma City, Okla., which employs 1,700 people. The center serves as Hertz's North American and South American reservations, customer service, finance and information technology centers.

Hertz's integration plans remain unclear, but there are questions about how the deal will affect the local economy of Tulsa.

"Obviously, Dollar Thrifty could lose its corporate headquarters. They could lose 700 jobs in Tulsa," Tulsa money market analyst Jake Dollarhide tells NewsOK.com. "Despite the positive news today for shareholders, it can be a net loss for Oklahoma two or three years from now."

"There's no question some of the Tulsa jobs will be at risk at some point," Thompson tells NewsOK.com. But he said Hertz's integration plans are in the preliminary stages and he couldn't speculate on how the acquisition would impact Dollar Thrifty's workforce in Tulsa or Oklahoma City, Okla. He said he doesn't expect any immediate changes in the company's Tulsa workforce this year.

Under the terms of the deal, which still needs federal approval, Hertz will pay $41 a share, a 19 percent premium over Dollar Thrifty's 30-day average stock price. The offer is 80 percent cash and 20 percent stock. Dollar Thrifty will pay out a $200 million special cash dividend to its shareholders, worth $6.88 a share. Hertz will also pay $25.92 a share as a cash payout after the deal's closing.

"We remain committed to our shareholders to run the company in their best interests pending the closing of the transaction," says Thompson. "We also remain committed to lead Dollar Thrifty as a standalone company in the event the transaction does not close."

Both companies reported their first-quarter financial results two days after the acquisition announcement.

Hertz Global Holdings Inc. reported first quarter 2010 worldwide revenues of $1.7 billion, an increase of 6.1 percent year-over-year (a 2.3 percent increase excluding the effects of foreign currency). Worldwide car rental revenues for the quarter increased 10.8 percent (a 7 percent increase excluding the effects of foreign currency) to $1.4 billion.

Dollar Thrifty Automotive Group Inc. posted total revenue of $348.3 million in the first quarter, compared to $362.4 million in the year-ago period. Dollar Thrifty reported net income of $27.3 million for first quarter of 2010, compared to a net loss of $8.9 million in the first quarter of 2009.

Shares of both companies have increased since the acquisition announcement. In addition, Moody's Investors reaffirmed its credit ratings on Hertz and Dollar Thrifty. The ratings firm maintained its "B1" corporate family rating on Hertz and its "B3" corporate family rating on Dollar Thrifty. However, Moody's kept Hertz's outlook negative while Dollar Thrifty's was upgraded to positive. 

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