Hertz, Dollar Thrifty Deal Could Drive Shares
NEW YORK ( TheStreet) -- After stronger than expected fourth quarter earnings, Hertz (HTZ) may dust off its M&A playbook in 2012 and retry an acquisition of Dollar Thrifty (DTG) to alleviate pricing pressures, according to industry analysts.
Hertz may look at a merger with Dollar Thrifty as a way to stay aggressive in 2012 after its shares rose sharply on Tuesday on stronger than expected earnings and guidance. While analysts point to consolidation as a quick way for the second largest U.S. rental car company to continue to grow its profit margins, it still must overcome regulatory hurdles.
|Hertz jumped the most in two months on Feb. 22 fourth quarter earnings|
In October, Hertz pulled a cash and share exchange offer for Dollar Thrifty that valued the industry fourth player at $1.91 billion or $72 a share, on deteriorating market conditions, a negotiating deadlock and regulatory scrutiny. However, the company has kept hope of an eventual deal alive, with its Chief Executive indicating a continued 2012 push.
Such a move would make sense as a quick way for the company to boost earnings, even if a merger isn't immediately needed for either Hertz or Dollar Thrifty, according to Fred Lowrance, an analyst with Avondale Partners. "
The key will be for Hertz to get approvals for a merger from the U.S. Federal Trade Commission and then seek a buyer for its value-oriented Advantage brand and some of its airport retail locations, minimizing antitrust concerns. Penske, private-equity firm Cerberus Capital Management and European rental car company Sixt have all been reported as candidates for Advantage, says Lowrance. He adds that Avis is unlikely to return to the bidding table for Dollar Thrifty after abandoning a merger bid in September, after a war emerged between it and Hertz.
"Avis has enough to chew on right now with integrating its Avis Europe acquisition, and plus, they already have a leisure brand (Budget)," says Lowrance.
After clearing the way for a deal, Hertz would also likely need to sweeten its previous offer of $56.70 a share in cash and an exchange of 0.8546 Hertz shares for each Dollar Thrifty share that equated to a $72 value, when announced. However, when Hertz shares slid last fall, the stock exchange became less economic. Meanwhile, Dollar Thrifty enacted a "poison pill" to prevent Hertz from accumulating a significant stake in the company.