When Hertz Global Holdings announced last November that it had finally succeeded in an on-and-off pursuit of Tulsa-based Dollar Thrifty Automotive Group, the $2.3 billion deal came with the caveat of needing final government approval.
Several days before Hertz sent out the news release on the merger, the Federal Trade Commission voted 4-1 to give its blessing. That approval was conditioned upon Hertz divesting some of its airport outlets and selling its Advantage brand - a value-oriented operation that served a market similar to Dollar Thrifty - to Franchise Services of North America and Macquarie Group Ltd.'s Macquarie Capital.
One of the government's concerns, undoubtedly, was to make sure enough competition existed in the market after the merger to keep car-rental costs from rising sharply. The combined Hertz-DTAG business would compete with major players Enterprise Holdings and Avis Budget Group, but federal officials likely were hoping Advantage would become the plucky fourth adversary that Dollar Thrifty had been.
It was thought the FTC would put its final stamp on Hertz's paperwork after a 30-day comment period. But the end of the year passed without any action.
Now, Hertz and Dollar Thrifty find themselves approaching summer, and there's still been no final approval. That hasn't stopped Park Ridge, N.J.-based Hertz from moving forward, though. It announced plans recently to build a $60 million, 300,000-square-foot headquarters near Fort Myers, Fla., and move 120 of Dollar Thrifty's 720 employees in Tulsa there.
So, what's the holdup at the FTC?
According to reports, the government has not exactly been filled with confidence by how Sydney, Australia-based Macquarie has handled its acquisition of Advantage. Macquarie was supposed to grow the business, but instead one of its first moves was to fire Sanford Miller, a longtime car-rental executive who was to run Advantage under a consent agreement the FTC had developed.
Bloomberg News, citing unnamed sources, reported recently that antitrust regulators are probing whether Macquarie violated the pact.
Scott Thompson, the former Dollar Thrifty CEO who took the Tulsa company from the brink of collapse to the Hertz merger before stepping down at year-end, sent me a note saying he was "very surprised" by the Macquarie development.
Still, the snag is unlikely to pose any serious threat to the Hertz-Dollar Thrifty deal, Thompson said.
"I have always found the FTC to be a very professional organization with a very competent staff," he said. "I am sure they will figure this thing out."
Bloomberg's sources said possible solutions include finding another buyer for Advantage and/or ordering Hertz to divest more rental locations.
Fred Lowrance, senior research analyst with Avondale Partners LLC in Nashville, Tenn., told Bloomberg the FTC's reticence shouldn't worry Hertz investors. His firm currently has a "market outperform" rating on the stock.
"If you run all the reasonably plausible scenarios, there is no material impact to Hertz earnings," Lowrance said.
Miller, the former CEO of Budget Group who was supposed to lead Advantage, was forced out five days before the acquisition closed and replaced by his co-CEO at Franchise Services, Thomas McDonnell.
Franchise Services said in December the move was designed to "streamline the company's executive management," but lawsuits have since been filed. U-Save Auto Rental of America, the company with which Miller had a contract, now charges that Miller was terminated for cause, according to a Bloomberg report. Miller, on the other hand, has launched his own lawsuit alleging he was used to gain FTC approval of the deal and then discarded.
No matter what the FTC decides to do, the U.S. car-rental market "needs a strong Advantage rental car company," Thompson said.
Hertz, Enterprise and Avis control about 75 percent of the $30.5 billion domestic industry, while Dollar Thrifty has about 5 percent, according to IBISWorld.
The combined Hertz-Dollar Thrifty business promises to be a strong competitor. Hertz has 8,750 outlets worldwide, and Dollar Thrifty has about 280 company-owned outlets in the U.S. and Canada.
The Dollar Thrifty segment, backed by Hertz's financial clout, is likely to be especially formidable. It's helpful here to remember that the Tulsa company's people were so highly prized by Hertz that the company was willing to dump its own home-grown business, Advantage, to bring them in.
In the meantime, the impact on consumers appears to already be showing up in some financial numbers. Hertz reported improvement in both pricing and earnings for the first quarter.
That alone probably doesn't make the FTC's task any easier.
Timeline
April 25, 2010: Hertz Global Holdings offers $1.27 billion, or $41 a share, for Dollar Thrifty.
Sept. 12, 2010: Hertz increases its buyout offer to $1.43 billion, or $50 a share.
Sept. 24, 2010: Hertz CEO Mark Frissora says the company's $1.45 billion, or $50.25-a-share, bid is "our best and final offer" for Dollar Thrifty.
Sept. 30, 2010: Dollar Thrifty shareholders reject the Hertz offer.
May 9, 2011: Hertz offers Dollar Thrifty shareholders $72 per share, a bid worth about $2.25 billion.
Oct. 27, 2011: Hertz withdraws its offer, citing a Dollar Thrifty share buyback program and current market conditions, but says it still is interested in buying the company.
Sept. 10, 2012: Hertz begins a cash tender for Dollar Thrifty's common stock.
Nov. 15, 2012: Hertz wins conditional approval from the Federal Trade Commission for merger.
Nov. 19, 2012: Hertz completes $2.3 billion, $87.50-per-share acquisition of Dollar Thrifty.
May 14, 2013: Hertz, Dollar Thrifty still waiting for final FTC approval.
Original Print Headline: FTC nod on Hertz deal still awaited
Column - Stancavage
When most people look back on the collapse of Lehman Brothers five years ago this week, they call what happened next a national financial crisis.
For the past few years, Wall Street has been a tough road to maneuver, full of potholes and the wreckage of once-successful companies.
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