Hertz may split Dollar Thrifty to win FTC approval
BY Staff and Wire Reports
Saturday, October 27, 2012
10/27/12 at 4:44 AM
Find all the stories about the Tulsa-based rental car company and possible mergers.
Hertz Global Holdings may split the two brands of Dollar Thrifty Automotive Group to win antitrust approval of a $2.6 billion merger, a newspaper reported, but a Wall Street analyst said the strategy wouldn't make sense.
The Dollar and Thrifty brands now share some fleet vehicles, as well as back-office operations, a story in the New York Post noted.
Hertz could spin off Thrifty to get the Federal Trade Commission to approve the deal, the Post story said, citing two unnamed people familiar with the talks.
Bloomberg News, however, reported Friday that Morgan Stanley analyst Adam Jonas said "carving out" Thrifty was not a workable idea.
Thrifty represents about 25 percent of the revenue of Dollar Thrifty, which employs 780 people in its Tulsa headquarters. Hertz also has talked to regulators about lowering Thrifty's prices, the Post reported.
Jonas said the FTC review, which is stretching out longer than Hertz predicted it would, doesn't "seriously threaten" the merger.
Still, Bloomberg reports indicate the combination is getting serious scrutiny, and the vote may be close.
The four FTC commissioners likely are split on approving the deal, giving Chairman Jon Liebowitz the decisive vote, according to the New York Post.
A vote may be scheduled for shortly after the presidential election, the Post reported.
Hertz's bid faces opposition at the FTC's Bureau of Economics, where some staffers think the $2.6 billion merger should be blocked, said Bloomberg's sources, who declined to be identified.
The stakes are high for Hertz. If the deal falls apart, Morgan Stanley's Jonas said, the failure could raise questions about the credibility of the company's long-term strategy.
Hertz, based in Park Ridge, N.J., announced the acquisition Aug. 26 and it said it expected FTC approval by mid-October. On Oct. 18, Hertz extended the deadline for the FTC to rule on the transaction to Nov. 16 from Oct. 31 because the agency needed more time to complete its review.
"We're maybe at the last hour, and now the FTC apparently wants to look at more information," Fred Lowrance, a Nashville, Tenn.-based analyst at Avondale Partners LLC, said in an interview with Bloomberg. "It's a little surprising and frustrating that the process continues to drag on this long."
Hertz, which has sought to take over Dollar Thrifty for more than five years, agreed to sell its Advantage brand to address FTC concerns that the deal would crimp competition.
Dollar Thrifty fell 16 cents Friday to $79.08 in New York trading. Hertz dropped 30 cents to $13.30.
Hertz offered Dollar Thrifty investors $87.50 a share. Lawyers for Hertz and the FTC have started preparing for litigation in case the FTC sues to block the deal, one of Bloomberg's sources said.
If the Dollar Thrifty deal is approved, the U.S. rental-car industry will have shrunk in the past half-decade from five major companies to three, highlighted by Enterprise Holdings Inc.'s 2007 acquisition of Vanguard Car Rental Group Inc., owner of the National and Alamo brands.
The four largest companies - Enterprise, Hertz, Avis Budget Group Inc. and Dollar Thrifty - control 80 percent of the U.S. market, according to market researcher IBISWorld.
The number of U.S. rental-car locations has fallen to 17,037 this year from a peak of 17,331 in 2007, IBISWorld said in a report on the U.S. market in February. That number will decline to 16,878 by 2017, Santa Monica, Calif.-based IBISWorld estimates.
"Companies will only need to give the commission more time when there are unresolved issues," said William Vigdor, an antitrust lawyer with Vinson & Elkins LLP in Washington, who served at the FTC for six years. "Clearly the jury is still out on whether the transaction will be approved."
Original Print Headline: Hertz may split Dollar Thrifty for approval
Tulsa World Business Editor John Stancavage contributed to this story by Bloomberg News.