Hertz is going to have competition if it wants to buy Dollar Thrifty.
“Avis Budget [has] expressed interest in entering into a transaction with Dollar Thrifty,” said its chairman and chief executive Ronald Nelson in a letter to Dollar Thrifty executives publicized Monday morning. “We would like to make a substantially higher offer to acquire Dollar Thrifty, especially in light of your recent performance and the potential synergies associated [with a deal to merge with] Avis Budget.”
Dollar Thrifty shares spiked up in early trading, to around $50.45, up about 15 percent on the day.
Hertz Global Holdings agreed last week to acquire Dollar Thrifty for $41 per share; or $1.2 billion, about 19% above its 30-day stock average in a cash and stock merger. The company may go forward in a bidding war with Avis Budget.
That, of course, stands to be immediately upended. Nelson requested to Dollar Thrifty executives that they immediately initiate a due diligence process and asked that “the egregious provisions of the merger agreement [with Hertz] be eliminated so that a level playing field can be created.”
By that, Nelson was referencing the estimated $44.6 million breakup fee attached to the deal with Hertz that Avis Budget would have to at least partially shoulder should it outbid its competitor. The 5.25 percent fee is more than what is customary.
Other examples of dealmaking in the auto rental space includes another Zipcar play; the company in late 2009, participated in a financing round with the owners of Catalunya Carsharing SA, otherwise known as Spain’s Avancar.
Hertz has made acquisitions to build scale in the down economy. Last year, Hertz Global Holdings made an M&A play in Spain, buying Rent One for its equipment rental division. Additionally, Hertz gobbled up the assets of Advantage Rent-A-Car when that auto renter filed Chapter 11.
An Avis representative declined to specify a timeframe for how bidding will proceed for Dollar Thrifty. Kirkland & Ellis LLP represents Avis Budget; including partners David Fox and Daniel Wolf, who are the lead attorneys.