Hertz to Buy Dollar Thrifty for $1.2 Billion


Hertz Global Holdings (HTZ) announced Monday plans to acquire rival Dollar Thrifty Automotive Group (DTG) in a deal valued at $1.2 billion, as the world's largest airport car rental company aims to increase its presence among European vacationers.

Under the deal, Hertz plans to pony up $41 a share that is comprised of 80% cash and the remainder in Hertz stock. The offer represents a 5.5% premium to Dollar's $38.85 closing price on Friday.

"Combining Hertz and Dollar Thrifty is an excellent strategic fit. Dollar Thrifty is a $1.6 billion business with more than 1,550 corporate and franchise rental locations worldwide which, when combined with our global network, will serve rental customers on six continents from approximately 9,800 locations," Mark Frissora, Hertz CEO, said in a statement. "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."

But, even more so, Frissora noted that the deal will allow Hertz to punch the accelerator on its plans to expand its presence in the leisure rental market in Europe and elsewhere.

The car rental industry, including Hertz, has hit hard times as the recession has siphoned off a bevy of business and leisure travelers. Last January, for example, Hertz announced it would cut 4,000 workers from its payroll and that was on top of the 22% it had eliminated over a two-year period that ended in late 2008. Dollar Thrifty also cut 6%, or 400 workers, from its payroll in 2008, as well.

With Hertz and Dollar Thrifty pushing consolidation in the car rental market, investors should keep a keen eye on the road ahead for other industry players that may make a run for it as well.

"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. We see the combination of our brands with Hertz's brands as very compelling," Dollar's CEO Scott Thompson said in a statement.

The specific terms of the deal call for Hertz to payout $41 a share, of which $32.80 will be in cash. The cash will be doled out in two phases, the first representing about a $6.88 a share dividend that Dollar will pay out before the deal closes and $25.92 a share that will come from Hertz post closing.

Hertz plans to cover the cash portion of the purchase price by using the existing liquidity, aka piggy banks, of the combined companies.

The deal also calls for Dollar shareholders to receive 0.6366 per share of Hertz at a fixed exchange ratio of $12.88 per share -- the closing price of Hertz on Friday. Hertz will also assume or refinance Dollar Thrifty's existing fleet debt that's outstanding when the deal closes.

"We've identified at least $180 million of synergies already, primarily in fleet, IT systems and procurement, enabling our companies to operate at an even lower cost," Frissora said.

As a result, Hertz believes the deal will be immediately accretive to its current annual adjusted earnings per share, once the deal closes.

Once the deal closes, Dollar Thrifty shareholders will own a 5.5% stake in the combined company, with Dollar Thrifty serving as a wholly-owned subsidiary of Hertz.