Avis Hires Some Big Guns for its Fight with Hertz over Dollar Thrifty

Avis Fights Hertz for Dollar Thrifty
Avis Fights Hertz for Dollar Thrifty

As Avis Budget (CAR) guns its engine and aims to crash into Dollar Thrifty's mega-merger agreement with Hertz (HTZ), investors should keep a keen eye on the guy riding shotgun.

In a jilted lover letter sent Monday, the rival car rental firm announced it, too, wants to acquire Dollar Thrifty (DTG), and Avis displayed the seriousness of its intent by hiring renowned proxy solicitor Dan Burch of MacKenzie Partners. Proxy solicitation firms do more than simply counting shareholder votes; they provide strategic help in sizing up shareholder sentiment when clients are trying to do such things as propel contested deals forward -- or stop them in their tracks.

Services can include advising companies strategically on which major shareholders to woo for their votes in favor of or against a merger, for example. Or, in the extreme, proxy solicitation firms can marshal the forces for an all-out proxy fight. For now, MacKenzie Partners is just listed by Avis as a contact for investors.

Avis Budget also has hired a supporting cast that includes PR firm Joele Frank Wilkinson Brimmer Katcher, which tends to throw its weight behind companies involved in contentious issues, and the law firm Kirkland & Ellis.

"It seems clear to me that Avis wants investors to know that they have retained a proxy solicitation firm and PR firm, and that they're resources to turn to to ask questions," said Bruce Goldfarb, CEO of proxy solicitation firm Okapi Partners.

Dollar Thrifty investors, excited about the prospect of Avis' "substantially higher offer," punched the accelerator on the stock, pushing its shares up 15.3% to $50.70 a share at Monday's close.

Avis Willing to Wait As Dollar Thrifty Thinks It Over

For Hertz, the arrival of a competing bidder makes its attempted $1.2 billion cash-stock acquisition of Dollar Thrifty more of a challenge, and even before that, it wasn't looking like a Sunday drive. Last week, a group of Dollar Thrifty investors filed a class action lawsuit to contest the Hertz deal, saying it undervalues the company.

Meanwhile, a source close to Avis said the car rental company had not issued a deadline for when Dollar Thrifty needed to respond to the company's offer.

The source noted that there is no urgency, given it will take some time for Dollar Thrifty's board to digest the Avis letter and make a decision on its next step. The source further noted that even if Dollar Thrifty chooses to ignore Avis, it will take awhile for the Hertz offer to work its way through the antitrust process.

In other words, Avis believes it has time to idle the engine while preparing for its next move -- but it's leaving its motor running.

CEO Talks About the Future, but Not About Avis's Offer

Amid all the activity Monday, Dollar Thrifty's CEO Scott Thompson sent an email to employees in an effort to calm the troops:

"Well, we had quite a week last week. Not only was there news of Hertz's intention to purchase Dollar Thrifty, but we also announced the best 1st Quarter earnings in our company's history. Basically, great short term news and uncertain long term news. That's a lot to digest in a single month, let alone the same week. Until we file some SEC documents (S-4), I am limited as to what I can say about the proposed transaction, but we will get those documents filed in the next 30 days or so.

Consolidation in the car rental industry is something that's been talked about for years. The headlines we saw last week, however, are not something we'd probably expected to see staring at us from our morning newspaper or computer screen:

· Hertz to buy Dollar Thrifty for $1.27 billion (Tulsa World)
· Hertz agrees to buy rival Dollar Thrifty car rental for $1.17B (USA Today)
· Everybody's happy as Hertz carpools with Dollar Thrifty (Forbes.com)
· Hertz acquisition proposal described as a 'perfect fit (The Oklahoman)
· Analysts like combo of car rental firms (Tulsa World)

Not to mention our stock price trading over the purchase price, and litigation claims against directors and officers of the company. (This is normal and expected in these types of proposed transactions).

To some it's a bit surreal and at the very least unsettling. For many, that will be an understatement, and I understand your concern. It's pretty clear to me that working at Dollar Thrifty has never been "just a job" or a paycheck. It's hard work fueled by passion, camaraderie and a feeling that we're all in this thing together.

We are going to set up a communication channel for you to ask questions and to give us a way to send you information regarding our path, once we know more. I expect it will be 30 to 60 days before I will have any additional feel for shareholder approval, regulatory approval or Hertz's integration thoughts. Again, sorry for the uncertainty last week has caused in your life.

We have had several owners in our history and Dollar Thrifty has always just kept on performing. We have kept on taking care of customers, kept on working together and kept on succeeding. That is what I expect our future to be.


P.S. It is business as normal. We are hiring. We are making investments in your company. We are competing against ALL competitors, including Hertz and Advantage. We are aggressively going after Tour accounts (hopefully some good news on this very soon) and we are working on getting you a great group of 2011 model vehicles."

Although Thompson references the soaring stock price, his email Monday failed to mention the Avis buyout offer. A spokeswoman for Dollar Thrifty also declined to comment on Avis.

Plenty of Precedent for Breaking Corporate Engagements

If Dollar Thrifty decides to steer away from the Hertz deal and drive off with Avis, it wouldn't be the first time a company has made such a decision after signing a definitive agreement.

Over the past seven years, 67 companies have been in similar positions, and nearly 47% chose to accept the new bidder -- resulting in an average increase of 14% in the final purchase price over the original offer, according to FactSet MergerMetrics.

"In 2006 and 2007, there was more deal jumping because there was more funding available to do deals," Jim Malley, vice president of FactSet said.

And when bidding wars erupt, Malley noted, "Price and ego can get in the way and bidders can overpay."