When they’re alone, you have to wonder whether the bosses of Avis and Hertz gaze upon the share price chart of Dollar Thrifty and burst into tears. They are fighting over a smaller rival that was trading at 62 cents at the depths of the financial crisis. On Monday, having bowed out after its original offer of about $40 was topped by Avis last summer, Hertz waded in again with a cash and share offer worth $72 per share. Tissues, please!
Given that Hertz is offering 11,500 per cent more than it could have paid two years ago (and a 24 per cent premium to Avis’s last bid) investors might have expected lots of details, particularly on synergy targets. Instead, cost savings were predicted to be “significant” and the presentation’s few bullet points looked like they were jotted down by bankers waiting in line for their rental car to arrive. Hertz shareholders deserve better.
That said, consolidation still makes sense for an industry that remains very competitive and, unfortunately, geared to the health of the car market. Indeed, the main reason Dollar Thrifty’s earnings were twice consensus estimates for the first quarter was because rising residual values reduced fleet depreciation costs. Demand and pricing are also recovering, and all the big rental companies are simply better managed these days.
Furthermore, anyone familiar with the plethora of rental signs at airports (most owned by protagonists in this deal) can appreciate that cost synergies could be more than significant. Last year Hertz reckoned it could strip out up to $200m per year from a combination with Dollar Thrifty. Taxed and capitalised, that equates to about half the equity value of Hertz’s offer. If these levels of savings are achievable, the deal looks attractive indeed. Almost too attractive, perhaps. Regulators will be keeping a close eye on this deal. Both Hertz and Avis need antitrust clearance and there is no guarantee that they will get it. Sob.
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