The chief executive of Dollar Thrifty stands to earn more than $40m should either Hertz or Avis succeed in buying the car rental operator, reflecting its dramatic comeback from the brink of insolvency just two years ago.
According to calculations by the Financial Times, Scott Thompson, who became chief executive of Dollar Thrifty in October 2008, could receive about $31m in unvested stock, options and performance- related grants, were a deal struck at $72 a share.
In addition, Mr Thompson, who owns about 0.6 per cent of the outstanding stock, could receive more than $9m in other payments, including a gross-up, which would cover his tax exposure.
While it is not uncommon for executives to receive large sums as part of a takeover, Mr Thompson’s payment would be substantial relative to the value of the deal. Hertz’s latest offer values Dollar Thrifty’s equity at about $2.2bn.
Dollar Thrifty has been on a roller-coaster ride, with the company’s stock sinking to 62 cents in March 2009 as investors fretted that it might not be able to refinance its fleet.
Options granted to management in 2008 had a strike price of just 97 cents.
Its rebound has been aided by the recovery in financial markets, as well as expectations that a bigger rival would eventually snap up the fourth- largest US car rental operator.
Chris Agnew, analyst at MKM Partners, argues that management also deserves significant credit for Dollar Thrifty’s resurgence, adding that the company had been struggling before the credit crunch pushed it close to the edge of bankruptcy.
“He came in at a very challenging time for the company,” said Mr Agnew of Mr Thompson.
“Scott quickly set about cutting overhead expenses, particularly headcount, and addressing the company’s single largest cost and balance sheet item, the company’s vehicle fleet.”
The difference between what car rental companies pay for their cars and their resale price accounts for about a quarter of their costs.
Mr Thompson broke a supply agreement with Chrysler, which accounted for about three-quarters of Dollar Thrifty’s fleet, noted Mr Agnew, as well as changing the company’s mix of vehicles and how they were owned.
Were the bidding battle between Hertz and Avis to escalate, Mr Thompson’s haul would rise. Some analysts now put the standalone value of Dollar Thrifty at $70 a share or more.
Get alerts on Mergers & Acquisitions when a new story is published