CHICAGO - Hertz Global Holdings Inc. said Monday it has agreed to buy rival Dollar Thrifty Automotive Group for about US$1.17 billion in cash and stock as it tries to expand its vacationer business.
Shares of both companies soared. The deal will give Hertz, already the world's largest car rental company by locations, a third more sites around the globe, boosting its total to 9,800. More importantly, it will also give Hertz's leisure segment a much-needed boost when it assumes control of the company's Dollar and Thrifty brands.
"Together we will be able to compete even more effectively and efficiently against other multi-brand car rental companies, offering customers a full range of rental options in the U.S.," Hertz CEO Mark Frissora said in a statement.
The move would leave three major U.S. car-rental companies, each with two or more large brands. Hertz also owns the Advantage rental car company and competes against Enterprise Holdings Inc., which has 7,600 Enterprise, Alamo and National sites and raked in $12.9 billion in revenue last year; and the smaller Avis Budget Group, which has 6,900 Avis and Budget locations and about $5.13 billion in revenue.
Monday's announcement comes after nearly a decade of consolidation in the car rental industry. In 2002, Avis' parent company bought Budget. Meanwhile, Enterprise's parent company acquired Alamo and National in 2007.
Hertz's business, which has revenue of $7.10 billion in 2009, is roughly evenly split between business and vacation travellers, while Dollar Thrifty's customers are mostly vacationers hunting for cheap rentals. Dollar Thrifty had revenue of $1.55 billion.
Hertz said its bid values Dollar Thrifty, based in Oklahoma, at $41 per share, a 5.5 per cent premium to Friday's closing price of $38.85. The offer is made up of 80 per cent cash and 20 per cent Hertz stock.
Dollar Thrifty shares have recently traded at their highest prices in almost three years as the car rental industry recovers from the recession that caused business and leisure travellers alike to shelve reservations. The stock was trading at $2 a little over year ago. It was valued at less than a dollar in early 2009 as investors worried about lower demand for rentals, falling resale prices for vehicles and problems facing its main supplier, Chrysler.
Its shares hit a three-year high of $42.60 in trading Monday. Meanwhile, Hertz shares rose to a two-year high of $15.60.
Under the terms of the deal, Dollar Thrifty will become a wholly owned unit of Hertz.
Hertz, based in New Jersey, expects the deal to start adding to profits immediately, and said it has already identified at least $180 million in potential cost cuts from combining the two businesses.
Separately Monday, Hertz reported a smaller first-quarter loss. The company trimmed its loss to $150.4 million, or 37 cents per share, from $163.5 million, or 51 cents per share, a year ago. Excluding one-time costs Hertz said it lost 12 cents per share. Revenue rose 6 per cent to $1.66 billion from $1.56 billion.
Analysts expected a loss of 13 cents per share and $1.62 billion in revenue, according to Thomson Reuters. Analyst estimates usually exclude one-time costs.
Hertz said U.S. rental car revenue rose 10 per cent due to higher prices, an increase in business travel, and better results for its Advantage leisure brand.
Analysts had forecast 44 cents per share and $7.45 billion in revenue.
Dollar Thrifty shares climbed $4.22, or 10.9 per cent, to $43.07 in trading while Hertz shares rose $1.81, or 14.1 per cent, to $14.69.
AP Business Writer Marley Seaman in New York contributed to this report.