Hertz & Dollar Thrifty to merge, but what of loyalty?
Hertz and Dollar Thrifty have announced that they have entered into a definitive merger agreement under which Hertz aims to acquire Dollar Thrifty for US$87.50 per share in cash, in a transaction valued at a corporate enterprise value of approximately US$2.3 billion - but there's no word yet on what will happen to the two firms' loyalty programmes.
The merger of Hertz and Dollar Thrifty, of which the boards of directors of both companies have already unanimously approved, would create a global, multi-brand rental car company offering a wide range of rental options through both premium and value brands.
Hertz also announced that it has reached an agreement to sell its Advantage business to Franchise Services of North America (FSNA) and Macquarie Capital. FSNA is a rental car operator with subsidiaries including (among others) U-Save, Rent-a-Wreck, Practicar and X Press Rent-a-Car. The closing of that deal is dependent on, among other things, Hertz completing the planned acquisition of Dollar Thrifty.
According to Hertz chairman and CEO, Mark P. Frissora, "We are pleased to have finally reached an agreement with Dollar Thrifty after a lengthy - but worthwhile - pursuit. We have always believed that a combination with Dollar Thrifty is the best strategic option for both companies. The transaction provides Hertz instant scale with two new, well-established brands with airport concession infrastructure in the mid-tier value segment. We'll be a stronger global competitive player with a full range of rental options not only in the US but in Europe and other markets given Dollar Thrifty's strong international presence."
If successful, the merger deal would provide Hertz with several strategic options to address both corporate and leisure business in all three tiers of the car rental market. (The combined company would have combined 30th June 2012 LET sales of US$10.2 billion and EBITDA of approximately US$1.8 billion across approximately 10,000 locations globally).
Perhaps more significantly, the merger represents significant growth opportunities, allowing Hertz to aggressively pursue mid-tier value and premium markets with dedicated brands, and compete even more effectively with its multi-brand peers.
The combination is also expected to create synergy opportunities, including higher productivity and efficiency from shared assets, the elimination of duplicate functions and better deals from suppliers (all of which could apply equally to the two respectively loyalty programmes). The company says it anticipates at least US$160 million of annual cost synergies, plus additional sales growth opportunities.
The transaction has been structured as a two-step acquisition including a cash tender offer for all outstanding shares of Dollar Thrifty common stock followed by a cash merger in which Hertz would acquire any remaining outstanding shares of Dollar Thrifty common stock. The transaction is subject to the tender of at least a majority of the shares of Dollar Thrifty common stock, as well as other customary closing conditions. The successful completion of the transaction is also subject to regulatory clearance by the US Federal Trade Commission (FTC). Hertz has remained closely engaged with the FTC to secure antitrust clearance for the proposed transaction and Dollar Thrifty will fully cooperate in the process.
Lazard, Barclays, Bank of America Merrill Lynch and Deutsche Bank are acting as financial advisors to Hertz. Barclays will serve as dealer manager for the tender offer. Barclays, Bank of America Merrill Lynch and Deutsche Bank will provide financing for the transaction. Cravath, Swaine & Moore LLP, Debevoise & Plimpton LLP and Jones Day are acting as legal advisors to Hertz. J.P. Morgan and Goldman, Sachs & Co. are acting as financial advisors to Dollar Thrifty. Cleary Gottlieb Steen & Hamilton LLP is acting as legal advisor to Dollar Thrifty.