Avis Budget Group Inc. (Nasdaq: CAR) agreed to buy car-sharing company Zipcar Inc. (Nasdaq: ZIP) for $500 million in cash.

The Parsippany, N.J.-based buyer offered Zipcar $12.25 a share—a premium of 49 percent over the target’s closing stock price of $8.24 at the end of 2012. Zipcar rents out vehicles by the hour or the day.

The transaction underscores the current competitiveness of the car rental market, pitting Avis against the rental businesses of rivals Hertz Global Holdings Inc. (NYSE: HTZ) and Enterprise Rent-A-Car. The Zipcar deal also comes just months after Hertz paid $2.3 billion for Dollar Thrifty Automotive Group Inc. (NYSE: DTG), an auction process that Avis attempted to win.

Zipcar, founded in 2000, has more than 760,000 members and operates in about 20 metropolitan areas in the U.S., Canada and Europe. Cambridge, Mass.-based Zipcar merged with a car-sharing rival, Flexcar, in 2007 and went public in April 2011 at $18 a share. After that, it acquired Denzel Mobility CarSharing GmbH, a car sharing service in Austria, for an undisclosed price, in July 2012.

Scott Griffith, Zipcar’s chief executive, and Mark Norman, its president and chief operating officer, are expected to stay on board as the company becomes a subsidiary of Avis and moves to a new head office in Boston.

AOL co-founder Stephen Case’s Revolution is currently Zipcar’s largest shareholder, with a 17.1 percent stake. Zipcar is also backed by venture capital firms Benchmark Capital and Greylock Partners.

Zipcar tapped investment bank Morgan Stanley to manage the sale, while law firm Latham & Watkins provided legal counseling. Citigroup and Kirkland & Ellis provided financial and legal advice to Avis Budget, respectively.

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