Back in October of last year, when Dollar Thrifty rebuffed Hertz’s “final” exchange offer and announced it was taking itself off the market, you would’ve thought the Hertz play for Dollar Thrifty was dead. The FTC approval process was dragging on much longer than anticipated, and it seemed Hertz couldn’t find a buyer for Advantage.
So, when Mark Frissora announced on Hertz’s first quarter 2012 conference call on Wednesday that Hertz has, in essence, an Advantage buyer and is finalizing antitrust clearance with the FTC, it may have come as a surprise to the general car rental community. But for those that follow Wall Street and merger and acquisitions activity, it was the inevitable culmination of months of behind the scenes work.
And so it’s on and poppin’ once again. What now?
The question is when, and how much. A Hertz offer should come down soon to calm any fears of deal uncertainty. And some very pesky issues have been resolved. First, Hertz finally has clarity on what the FTC needs to bless a deal. Second, Hertz finally seems to have an Advantage buyer. And third, Avis Budget Group is out of the picture to potentially muck things up on a Dollar Thrifty deal, as is any other wildcard suitor.
How much will Hertz have to pay? In October, some folks were scratching their head on why Dollar Thrifty would turn down that “final” offer of $72 a share. Surely Dollar Thrifty’s stock wouldn’t hold up moving forward, as M&A activity had subsided and there would be no further competing bids. Here we are seven months later, and Dollar Thrifty’s stock has risen from the low $60s per share to $80 plus. Dollar Thrifty is generating a war chest of cash and its operations have only improved, along with general industry fundamentals.
So yes, Hertz will have to pay more, perhaps in the mid-$80 range per share. There shouldn’t be a termination fee, as it seems the FTC’s worries have been solved. Dollar Thrifty’s so-called “poison pill” shareholder rights plan, in place through May 2013, should only play a factor if Hertz makes a run at gaining more than 50% of Dollar Thrifty’s stock and tries to take over the board of directors. This new offer should be friendly, and much more cut and dry.
Dollar Thrifty has the right to reject any offer, though it seems unlikely that Hertz would once again circumvent the Dollar Thrifty board and go directly to shareholders with a tender offer.
Who may have bought Advantage? I don’t know, and we may not know until a Hertz/Dollar Thrifty deal is announced.
The last point of discussion: Is it still worth it for Hertz to own Dollar Thrifty? You bet. The market continues to move in a direction that makes a deal worthwhile. The leisure channel has grown faster than corporate business, which continues to see pricing pressure. The Internet continues to level the playing field between brands in terms of price transparency and the opaque channels such as Priceline. The discount brands are doing a much better job serving their customers, thanks to improved car quality and the proliferation of consolidated rental facilities.
The synergies are still there. Hertz would have a tremendous opportunity to share fleet and use its new leisure brands as outlets for over-fleeting and to protect its premium image on price, as well as allow it more freedom from the opaque channels. Hertz could better compete in leisure markets such as Florida. Yup, it would be a good deal.
And so the plate tectonics in the world of auto rental are shifting once again, most likely for the last time in a very long time in such a major way. We’ll keep you posted as it all comes down.