Avis Budget Group to Buy Avis Europe

Avis Budget Group, Inc. and Avis Europe plc announced today that they have reached agreement on the terms of the acquisition by Avis Budget of all outstanding shares of Avis Europe in exchange for £3.15 in cash per Avis Europe share. The acquisition is scheduled to close in October 2011, subject to Avis Europe shareholder approval, court approval and regulatory clearances, according to a press statement. 

Avis Europe is an independent, publicly traded company that operates the Avis brand via a network of over 3,100 locations in 112 countries, through wholly-owned subsidiaries in 13 countries and through license arrangement in an additional 99 countries. Avis Europe also operates the Budget brand through 950 locations in 59 countries. 

The Terms

The terms of the transaction value Avis Europe's ordinary equity at approximately £635 million, or approximately $1.0 billion. According to the press statement, several of Avis Europe's shareholders have already committed to support the transaction. Avis Budget has received 'hard' irrevocable commitments from Avis Europe's majority shareholder, D'Ieteren, whose holdings represent approximately 60 percent of the share capital of Avis Europe as well as from the directors on Avis Europe's board. 

"This transaction represents an outstanding opportunity for Avis Budget, and the acquisition of a business that we have long sought to own," said Ronald L. Nelson, Avis Budget Group Chairman and Chief Executive Officer. "The transaction re-unites the global operation of the Avis and Budget brands under one corporate umbrella, and is both financially and strategically compelling. We expect the combination of our two companies will allow us to more effectively serve vehicle-rental customers worldwide, and to achieve operating synergies of more than $30 million a year. In addition, the acquisition will give Avis Budget an increased presence in rapidly-growing international markets, including India and China. 

"From a financial perspective, we expect the acquisition of Avis Europe to be accretive to Avis Budget's earnings per share on a pro-forma basis with synergies, excluding any integration and other one-time costs and the non-cash effects of purchase accounting. Because Avis Europe and Avis Budget generally do not have operations in the same jurisdiction, the acquisition is not expected to face significant antitrust obstacles." 

Upon the acquisition becoming effective, the combined Avis Budget and Avis Europe businesses will have annual revenues of approximately $7 billion and owned or licensed operations in more than 150 countries. Avis Budget expects to fund the acquisition using a combination of its own cash resources, equity funding through the potential issuance of up to $250 million of Avis Budget common stock, and debt financing which has been arranged by a syndicate of banks and/or proceeds from the issuance of debt securities. 

Avis Budget noted that it has made progress in its discussions with the Federal Trade Commission regarding its potential acquisition of Dollar Thrifty Automotive Group, Inc.

While Avis Budget will continue to monitor the Dollar Thrifty situation, the Company's focus squarely will be on completing and integrating the significant acquisition of Avis Europe, according to the press statement.

Analyst's View

"We believe this news will be negative for Dollar Thrifty Group (DTG, Neutral, $79.87, $70 FV) as it introduces uncertainty with respect to CAR's commitment and ability to pursue its interest in DTG," writes Christopher Agnew, managing director of MKM Partners. Agnew writes that "Although the FT noted that sources 'familiar with the matter said the company [CAR] was not planning to walk away definitively,' we [MKM Partners] believe this acquisition would restrict CAR's ability to compete in a bidding war with HTZ for DTG.

"We believe this news, if confirmed, is positive for Hertz (HTZ, Buy, $14.12, $20 PT) as it increases the likelihood that HTZ's recent exchange offer of approximately $72/share cash and stock offer is successful, subject to regulatory approval," Agnew continues. "We believe the highly strategic acquisition of DTG would be accretive at the current exchange offer."

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