Transport Cars

Hertz awaits Dollar Thrifty’s decision to merge after winning FTC approval on Thursday

Excerpt from John Stancavage

Nov 16, 2012 10:00 am

Skift Take

Hertz’s tender offer for Dollar’s stock is set to expire today and may need to be extended to get the necessary number of shares, although both boards have already approved the merger.

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Atomic Taco  / Flickr.com

A Hertz car rental shuttle pulls away from Los Angeles International Airport. Atomic Taco / Flickr.com


Hertz Global Holdings won approval from the Federal Trade Commission on Thursday for its proposed $2.3 billion merger with Tulsa-based Dollar Thrifty Automotive Group.

Commissioners voted 4-1 to allow the deal. Hertz next will attempt to complete its tender offer for Dollar Thrifty’s stock at $87.50 per share. The offer is scheduled to expire Friday, unless it is extended.

Hertz needs a majority of Dollar Thrifty shareholders to sell their stock. The merger already has been approved by the boards of both companies.

Dollar Thrifty has 780 employees in Tulsa, while Hertz’s biggest operation is its 1,700-person center in Oklahoma City.

During the two years that Hertz has been trying to acquire Dollar Thrifty, some local leaders have expressed concern about Tulsa losing another corporate headquarters. Hertz’s top officers are in Park Ridge, N.J., while Tulsa has been the home of Dollar Thrifty since 1994.

Hertz said it will evaluate staffing and functions at both locations after the merger.

On Thursday evening, the top officer of the Tulsa Metro Chamber said he has been impressed with Hertz’s executives and their eagerness to learn about Dollar Thrifty’s operations.

“While it is too early in the transition process to know the final outcome, we will continue working with Hertz to reinforce the retention of the highly trained DTAG workforce in the Tulsa region,” said Mike Neal, president and CEO of the chamber.

Hertz Chairman and CEO Mark Frissora said his company was pleased to be able to move forward.

“We have always believed that a combination with Dollar Thrifty is the best strategic option for both companies,” Frissora said in a statement.

Dollar Thrifty officials declined to comment.

The FTC’s decision was announced after the stock market closed. Dollar Thrifty’s shares closed at $87.00, up 1 cent. Hertz finished at $14.25, down 20 cents.

Dollar Thrifty’s stock traded as low as $74 in the past two weeks as investors began to have doubts about Hertz gaining antitrust approval.

Hertz and the FTC were reported to be bargaining hard over divestitures, and some analysts predicted the agency’s vote would be close.

Tulsa money manager Jake Dollarhide said that Friday could be a crucial day for the deal.

“Most likely, there will be a flood of shares tendered for the merger,” he said in a telephone interview. “But the FTC didn’t do Hertz any favors by announcing its approval just ahead of the Friday before a holiday week. Hertz may have to extend its offer again for a couple of weeks to get all the shares it needs.”

Shares of Dollar Thrifty likely will rise to $87.40 to $87.50 early Friday, he said.

“If it went significantly above that, it would mean there were investors betting that Hertz will have to sweeten its offer again — maybe to $90 — to get a majority to tender.”

To win antitrust clearance, Hertz will divest its Advantage Rent A Car business, as well as the rights to operate 29 Dollar Thrifty on-airport locations around the country.

Hertz is selling Advantage to Franchise Services of North America Inc. and Macquarie Capital Inc.

FTC officials said they believe the divestitures will mean the deal will not create an anticompetitive situation in the market.

“American consumers rent more than 50 million vehicles at airports nationwide each year, spending $11 billion, so this is a real pocketbook issue for everyday people,” FTC Chairman Jon Leibowitz said in a press release. “Today’s bipartisan action by the FTC will ensure that consumers are not forced to pay higher prices for rental cars when they travel.”

Once completed, the combination with Tulsa-based Dollar Thrifty would bolster Hertz’s position as the No. 2 player in the U.S. rental car market, enabling it to better compete with the industry leader, Enterprise Holdings Inc.

Together, Hertz, Enterprise Rent-A-Car and Avis Budget Group Inc. control about 75 percent of car rentals, with Dollar Thrifty holding 5 percent, according to a February report from IBISWorld, a Santa Monica, Calif.-based industry researcher. No other competitor has more than 1 percent of the $30.5 billion market in the U.S. this year, according to IBISWorld.

Nima Samadi, who follows the rental car industry for IBISWorld, said he was not surprised by the FTC’s approval of the deal.

“It was to be expected since they (FTC) set the conditions of the divestiture, requiring the additional divestiture of airport locations because the combined company would have too large a share of airport locations,” Samadi said in a telephone interview.

He said Dollar Thrifty will provide “huge benefits” to Hertz.

“They now have a larger presence in the low-cost leisure market, and they are in a very strong position for continued revenue growth,” Samadi said. “The low-cost leisure market is an area of growth in the future. That’s why Dollar Thrifty became such a coveted company. They performed better than other car rental companies, which were hurt by (the downturn in) business travelers.”

Fred Russell, CEO of Fredric E. Russell Investment Management Co. in Tulsa, said he is concerned about the impact on Dollar Thrifty.

“In almost every merger, there are job losses,” Russell said. “It could mean 100 to 200 people could lose their jobs in Tulsa, ranging from software developers, accounting, fleet purchasing and other positions.

“Mergers happen because companies want a bigger market share and they want to increase efficiencies,” he said. “Unfortunately, efficiencies mean loss of jobs.”

Russell said the FTC’s requirement that Hertz divest 29 Dollar Thrifty airport locations in addition to its Advantage discount rental car brand is not “crippling” to Hertz.

“It’s about 10 percent” of Dollar Thrifty locations in the U.S., he said. “It still leaves Hertz with dominant market share in some locations.

“Hertz comes out of this smelling like a new Ford with less than 2,000 miles on it.”

Tulsa World staff writer D.R. Stewart contributed to this story, as did reporters at Bloomberg News.

Proposed Hertz-Dollar Thrifty merger

Total value of transaction: $2.3 billion

Major concessions: Hertz will divest its Advantage unit and rights to operate 29 Dollar Thrifty airport locations.

Current tender offer: $87.50 per share.

Hertz’s size: Domestic fleet of 355,000 vehicles; 16,400 employees in U.S.

Dollar Thrifty’s size: Fleet of 107,000 vehicles; 5,900 employees.

2011 earnings: Hertz $3.3 billion, Dollar Thrifty $1.4 billion.

Sources: Hertz, Dollar Thrifty, FTC.

John Stancavage: (918-581-8314) & john.stancavage@tulsaworld.com.

(c)2012 Tulsa World (Tulsa, Okla.). Visit Tulsa World (Tulsa, Okla.) at www.tulsaworld.com. Distributed by MCT Information Services.

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