Hertz Global Holdings Inc. provided the Institutional Shareholder Services/RiskMetrics Group on Tuesday with a presentation outlining Hertz's analysis of the anti-trust risks posed by a merger of Hertz or Avis Budget Group Inc. with Dollar Thrifty Automotive Group Inc.
The presentation illustrated key pricing data and the results of a pricing test (known as Gross Upper Pricing Pressure Index) which the U.S. government uses to evaluate the anti-trust risk posed by merger transactions. Both the pricing data and the GUPPI results support Hertz's view that a merger of Avis Budget and Dollar Thrifty poses a far higher anti-trust risk than a merger of Hertz and Dollar Thrifty.
The Hertz presentation also illustrates the significant valuation and financial impact on Avis of a divestiture by it of several hundred million dollars of revenues or of a large value brand; either of which may be required for Avis Budget to obtain anti-trust approval of a transaction with Dollar Thrifty.
"The anti-trust considerations in a merger with Dollar Thrifty will be pivotal in this transaction. The major value brands in the car rental market at U.S. airports today - Budget, Dollar, Thrifty, Alamo and Enterprise - effectively control this key leisure rental segment," said Hertz Chairman and CEO, Mark P. Frissora. "If Avis Budget merges with Dollar Thrifty, all of these brands and, thus, the value leisure segment, will be controlled by either Avis or Enterprise, and that's a bad deal for car rental customers. The data support the same conclusion, which is why a Hertz merger with Dollar Thrifty is better for consumers as well as our respective shareholders."
"These facts will be apparent to those involved in the anti-trust analysis, and that's why it's important that investors understand the financial and valuation implications of revenue or a brand divestiture, which our merger agreement with Dollar Thrifty addresses in full," Frissora said. "Given their current penetration of the value leisure segment and consequent anti-trust risk, Avis Budget offered a relatively small protection to Dollar Thrifty in the event significant divestitures are required by government regulators and, perhaps even more noteworthy, no reverse break-up fee,
"One can only conclude that Avis Budget knows it will have a difficult, if not impossible, task to finalize a merger with Dollar Thrifty without divesting a large brand or without a revenue carve-out perhaps exceeding well over $500 million. That's why Avis Budget wanted a free exit pass and Dollar Thrifty refused to accept their offer," Frissora concluded.
To view the complete presentation, click here.